Industry divided on ending last bastion of ‘licence-permit Raj’.
Sugar, virtually the last bastion of India’s infamous ‘licence-permit Raj’, is likely to enter a brave new world of price and marketing decontrol. While different segments of the government remain divided, the move for sugar decontrol has received a strong push from the Commission for Agricultural Costs and Price (CACP). The trigger is the likely surge in domestic production of sugarcane and sugar in 2010-11 and 2011-12, with estimated sugar production of 22.5 million tonnes and 30 million tonnes, respectively. This is against an estimated production of just 18 million tonnes in 2009-10.
To begin with, the Union government proposes to remove the release mechanism order and withdraw levy obligations for mills. However, while decontrolling sugar prices, the Centre is keen on retaining powers to specify a ‘fair and remunerative price’ (FRP) to be paid by sugar mills to cane farmers.
| SUGAR OUTPUT | |
| 2009-10 | 18.0 |
| 2010-11 | 22.5 |
| 2011-12 | 30.0 |
| (figures in million tonnes) Source: Government estimates | |
“The time is ripe to go in for sugar decontrol, especially when India is expected to have surplus production of sugarcane and sugar in 2010-11 and 2011-12,” a source close to the development told Business Standard. “Currently, the government finalises levy and free sugar quotas. Besides, sugar comes under the purview of the Essential Commodities Act. Also, in the present sugar control regime, the government decides the distance between two sugar mills and takes decisions with regard to sugar import and export.”
Sources said except announcing FRP for cane, the proposal is the government should have no other role in a decontrol regime.
Backing the government’s move, Planning Commission member Abhijit Sen, told Business Standard: “In my personal opinion, this is the right time to move towards decontrol of sugar. While prices of the sweetener have moderated in recent weeks, this is a time when there is no surplus and there won’t be deficits, as production is expected to go up further, and hence, government should move towards decontrolling sugar and start building a buffer.”
Sen is the son of eminent an economic policymaker, the late S R Sen, who chaired the Sugar Enquiry Commission in 1965. The commission had recommended, for the first time, sugar decontrol along with the creation of a buffer stock that would be maintained by the government to prevent either an excessive rise in prices, to protect consumers, or an excessive fall, to protect cane growers and enable mills to pay a remunerative price to farmers.
Successive governments have toyed with the idea of decontrol for the past 45 years. The power of the so-called “sugar lobby”, on the one hand, and political sensitivity to urban consumers, on the other, have prevented the government from decontrolling sugar, even though commodities like steel and cement were decontrolled years ago.
The sugar industry is, understandably, divided. Private sugar mills, under the aegis of the Indian Sugar Mills Association, strongly believe the decision is overdue and the government should announce it at the earliest. On the other hand, cooperative sugar mills, represented by the National Federation of Cooperative Sugar Factories, are of the view that decontrol should be done in phases and not at one go.
Cooperative mills fear that decontrol would lead to a crash in sugar prices and these may fall to Rs 2,000 per quintal from the present level of Rs 2,400-2,900 per quintal. Industry sources admit that this year, farmers might get less money from mills compared to last year.
Last season, mills had paid to farmers up to Rs 250-260 per quintal against fair and remunerative price (FRP) of Rs 129.84 per quintal linked to 9.5 per cent recovery rate.
Recently, cabinet decided FRP of Rs 139.12 per quintal for 2010-11 sugar season.
The key to decontrol is removing levy sugar requirement. Sugar acquired by the government is used for distribution through the public distribution system. If the system of imposing a levy quota is removed, as part of decontrolling sugar industry, government would have to buy sugar from the open market. If prices rise, it would then have to take on a subsidy burden if it wishes to sell cheap.
To compensate for this additional cost on the government Dr Sen suggests some tax on the industry. He says, “Industry should pay some tax which can be in the form of a cess. This revenue can be used to finance the additional burden of acquiring sugar for buffer stock.”
ISMA sources argue that the sugar decontrol would largely benefit the industry as mills would be in a position to release floating capital after sale of sugar. “The efficient mills will exist and they will be able to strengthen their position in the decontrol regime,” sources said.
However, sources at the National Federation of Cooperative Sugar Mills and the Federation of Cooperative Sugar Mills in Maharashtra said that cooperatives would not be able to avail the benefits of buffer stock and sugar export grant from the Centre, especially during the sugar deficit cycle. Further, sources said, the Centre should fix FRP only after consultations with organizations of sugarcane growers and sugar industry, agriculture universities and agriculture experts. Moreover, the Centre should exclude sugar from the Essential Commodities Act.
Last season, mills had paid to farmers up to Rs 250-260 per quintal against fair and remunerative price (FRP) of Rs 129.84 per quintal linked to 9.5 per cent recovery rate.
Recently, cabinet decided FRP of Rs 139.12 per quintal for 2010-11 sugar season.
The key to decontrol is removing levy sugar requirement. Sugar acquired by the government is used for distribution through the public distribution system. If the system of imposing a levy quota is removed, as part of decontrolling sugar industry, government would have to buy sugar from the open market. If prices rise, it would then have to take on a subsidy burden if it wishes to sell cheap.
To compensate for this additional cost on the government Dr Sen suggests some tax on the industry. He says, “Industry should pay some tax which can be in the form of a cess. This revenue can be used to finance the additional burden of acquiring sugar for buffer stock.”
ISMA sources argue that the sugar decontrol would largely benefit the industry as mills would be in a position to release floating capital after sale of sugar. “The efficient mills will exist and they will be able to strengthen their position in the decontrol regime,” sources said.
However, sources at the National Federation of Cooperative Sugar Mills and the Federation of Cooperative Sugar Mills in Maharashtra said that cooperatives would not be able to avail the benefits of buffer stock and sugar export grant from the Centre, especially during the sugar deficit cycle. Further, sources said, the Centre should fix FRP only after consultations with organizations of sugarcane growers and sugar industry, agriculture universities and agriculture experts. Moreover, the Centre should exclude sugar from the Essential Commodities Act.
