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While welcoming the proposal of the food ministry to retain sugar distribution under the public distribution system, various states have been opposed to the Centre's proposal of sharing of subsidy for buying sugar under the scheme.
The food ministry has sent its proposals to the cabinet on Rangarajan report on sugar decontrol and the cabinet is expected to discuss the issue soon. The recommendations also contain the views of various states that have studied the sugar decontrol report.
In its recommendations, the food ministry has discussed several scenarios and suggestions for bearing the cost of subsidising sugar for distribution under PDS in various states. The ministry has calculated the revenue burden on account of PDS sugar to be around RS 3,500 crore a year. Officials said this could increase, depending on the market price of sugar.
According to official sources, there are two key issues -– abolition of levy on sugar distribution and deregulation of release mechanism -- which are contentious and need consensus with states and other stakeholders. They clarified that in the long run, end users will have to bear the burnt of the deregulation mechanism.
As far as deregulation of release mechanism is concerned, the food ministry is in favour of freeing sugar mills from the levy obligation. Accordingly, they will be free to sell their entire quota either in free market or to states for PDS depending on the price. Therefore states have to buy sugar from the open market at market price and sell it cheap under PDS. The difference has to be borne either by states or centre or both.
However citing PDS to be central government obligation and that claiming that the state governments themselves have lot of other social welfare issues, states have backed out of the subsidy sharing mechanism.
Official sources said, going by the political compulsions, the centre may just agree to fund the states the entire money required to buy sugar from the open market for sometime post deregulation. In the meantime, the centre can explore other ways to garner additional revenue to fund sugar PDS.
Sugar may form part of the combined subsidy which the states get annually from the central government for different schemes and projects. Officials said, to that extent the frame of other plans and projects may be tailored to incorporate sugar subsidy in the total amount. In the long run, states may eventually agree to bear the costs since they would need the central subsidy for other important issues.
Secondly, for the time being, the government may hike the excise duty on sugar which currently stands at Rs 95 per quintal.
As regards to the levy obligation, the food ministry has already taken measures by extending the quota period from monthly to quarterly before completely doing away with it.
Last year, in a first to deregulate PDS price of sugar, the Sikkim government increased the price of levy sugar, meant for the Public Distribution System (PDS).
Sikkim raised the price of levy sugar to Rs 26 a kg as against the central government rate of Rs 13.50, setting the precedence for partial deregulation of levy sugar pricing. Levy sugar is amount set aside from the total production for PDS.
Background
The Union ministry of food had moved a proposal for the Cabinet to raise the price of levy sugar from Rs 13.50 a kg, fixed since 2002, to Rs 24-26 a kg but decision has been deferred more than once. The market price is Rs 30 a kg. To cut the subsidy under PDS for sugar to the states, the central government had asked states to raise the price of sugar for the PDS without waiting for its own decision.
Earlier, there was not much difference between the market price and levy sugar meant for the PDS but the difference has been rising over recent years. Since the states are reimbursed to the extent of Rs 13.50 per kg and the market price was around it, supply was not a problem for the PDS earlier. The situation has since reversed and the lifting of sugar under the PDS from mills has come down to 60-70 per cent of the stock as against 90-95 per cent earlier, said officials.
The subsidy is given to states against receipts of distribution of sugar under PDS at the levy price of Rs 13.50 per kg only. For instance, say sources, the Bihar and Chhattisgarh governments have almost stopped lifting sugar from mills for the PDS.
