Oppn kills proposal to hike ration sugar prices

Proposal could not be discussed in Cabinet meeting held on Monday because of absence of food and consumer affairs minister K V Thomas

The government seems to have backtracked on its proposal to raise the price of sugar sold through ration shops to bring down its food subsidy bill, days after floating it.

Officials said the proposal which could not be discussed in the Cabinet meeting held on Monday because of absence of food and consumer affairs minister K V Thomas has been dropped from the Cabinet agenda for the time being.

The proposal could not find favour of a section of the Congress along with its President Sonia Gandhi, who was reportedly unhappy over the timing given that the festival season is approaching fast. Consumption of sugar goes up in the festival season.

Officials said that finance ministry was keen on bringing about the proposal which would have enabled the government to stop its annual food subsidy from spiralling way beyond the estimated Rs 75,000 crore for 2012-2013 financial year.

This is already more than the Rs 73,000 crore revised food subsidy estimate for 2011-2012.  "The matter could again be discussed once the festival season is over,"  a senior government official said.

He said the government’s annual subsidy on cheap sale of sugar through ration shops would be nonexistent if the rate is increased from the current Rs 13.50 per kilogram to almost Rs 23 per kilogram.

The price of Rs 13.50 has been retained since March 2002. The government annually bears a subsidy of around Rs 1,330 crore on sale of cheap sugar through the ration shops.

The subsidy is incurred as the government purchases sugar from mills at around Rs 19.05 per kilogram (which is less than the market rate) and then sells its at still lower price of Rs 13.50 per kilogram, incurring a subsidy of Rs 5.55 on every kilogram of sugar sold through ration shops.

Sugar mills are are mandated to sell 10 per cent of their annual production to the government for the sale through ration shops. The subsidy is transferred to the state government who purchase the sugar from mills for sale through ration shops.

"The state civil supplies corporation and other government agencies are facing a significant liquidity crunch because of the freeze on price of sugar sold through ration shops as it is they who purchase the sugar from mills at below market rates and sell it at a much lower price," another official explained.

The subsidy burden has risen sharply in the last few years because the price at which government purchases sugar from mills for distribution through the public distribution system (known as ex-factory levy sugar price) has increased by more than 40 per cent since 2008-09 crop marketing season.

The subsidy will inflate further since sugarcane price has been raised by over 17 per cent for the new season beginning October. The government sells over 200,000 tonnes of sugar every month through the public distribution system.

The food ministry had earlier too raised this issue with the empowered group of ministers in June 2010 and thereafter in September 2010 and also in December the same year.However, the idea was then deferred due to high food inflation.  

Explaining the rationale, the official said that price would not have been much on the common man as in case very little quantity of sugar is distributed to Below Poverty Line (BPL) people through the ration shops.

"Of the total entitlement of around 2.1-2.6 million tonne of sugar, in an year the government lifts just around 1.5-1.6 million tonne, while the rest is kept with the mills as stocks," he said.

As on October 1, 2011, around 2 million tonnes of unsold levy sugar was stocked with the mills which the government could not lift in the last 2-3 years," he said. This unnecessarily locks the working capital of sugar mills and crimps their ability to make timely payment to sugarcane farmers.