Better than nothing

But sugar decontrol doesn't go far enough

Something is better than nothing", as the saying goes. This applies aptly to the Cabinet's decision last week on partial decontrol of sugar, the last major controlled industry. By scrapping the sugar levy and the regulated release mechanism, the government has liberated essentially a single segment of the sugar economy - marketing. But it falls considerably short of total deregulation. Viewed in the backdrop of the recommendations of the high-level committee on sugar, headed by Prime Minister's Economic Advisory Council Chairman C Rangarajan, the unfinished agenda in sugar sector reforms is still fairly lengthy and intimidating. Some critical issues have been left for the states to deal with. These include rationalisation of sugarcane pricing; abolition of cane area regulation and the bonding of sugarcane farmers with specific sugar mills; and dispensing with the minimum distance criterion for setting up sugar factories.

However, regardless of the limited scope of this reformist move, the sugar industry stands to benefit. The levy system had required the industry to part with one-tenth of its production at below-market prices to allow the government to sell sugar at cheaper rates through the public distribution system (PDS). This was causing heavy losses to sugar mills, which effectively subsidised the PDS. The industry will now be able to save this money, estimated at around Rs 3,000 crore a year. However, the fact that this is a temporary arrangement to be revisited by the government after two years will continue to hang like a sword of Damocles over the industry's head. The reaction of the state governments, which will henceforth have to buy sugar for PDS from the market and subsequently get reimbursed from the Centre for their losses, is still unclear. Some states may have reservations about capping the sugar subsidy to the extent of the current price differential between the market and the PDS rates.

Sugarcane pricing is another vital issue, particularly in states where the system of state-advised prices (SAP) is in vogue. The Rangarajan panel had suggested a well-conceived formula for revenue sharing between the industry and cane growers, and it was broadly acceptable to all stakeholders. But by leaving the cane price fixation to the states, the Centre seems to have legitimised the SAP system, giving the states full liberty to fix cane prices on populist, rather than economic, considerations. Unrealistic cane prices may at times create liquidity problems for sugar mills and impair their capacity to make prompt payments to cane farmers. Sugar sector reform will remain incomplete till sugarcane pricing is also freed from government intervention.