Sugar, the most politicised commodity, is back in news with some hints from the government on the sector’s decontrol. It is likely to enter a brave new world of price and marketing decontrol in the background of the crisis which the sector is confronting since the last 2 years for the pricing, sales, distribution, export-import and government water-tight regulatory framework.While different segments 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.
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.
When almost all major sectors get free from the clutches of the government and flourish, then why not the humble sugar? We have seen the emergence of many sectors, particularly during 90’s, either it is services or, manufacturing but the regulatory atmosphere has to be healthy for a prosperous and flourishing industry. If everything right from the SMP/ Minimum prices to market prices, buffer stocks and export-imports are decided by the bureaucratic governments, then how promising the sector can be?
The Indian Sugar Industry has over the years enjoyed tremendous political patronage with its stakeholders forming powerful lobbies. Powerful political interests entrenched in state-level politics in states like Maharashtra and Uttar Pradesh have managed to prevent full decontrol of sugar prices. For a long time even government economists believed the system of partial decontrol served the needs of both farmers and poorer consumers.
The Government has yet to take a decision on the recommendations of Mahajan Committee report submitted in 1998, which include complete decontrol of the sugar industry. At present all sugar mills are required to pool 40% of their output as levy sugar at a price fixed by the Government for supply through the PDS. The Mahajan Committee has recommended that the levy be reduced to 20% next year and be abolished from the subsequent year. It has also recommended that sugar be taken off the PDS once it is totally decontrolled and that the sugar subsidy be added to the subsidy on foodgrains supplied through the PDS. Removing sugar from the PDS is a political decision that a coalition government may be reluctant to take. If sugar should continue to be supplied through the PDS, the Government can buy it from the mills at the market price.
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. There should be no role of government in the decontrolled regime, except announcing FRP for cane.
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 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.
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. 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.
This is the right time to move towards decontrol of sugar, especially when India is expected to have surplus production of sugarcane and sugar in 2010-11 and 2011-12.
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.
When almost all major sectors get free from the clutches of the government and flourish, then why not the humble sugar? We have seen the emergence of many sectors, particularly during 90’s, either it is services or, manufacturing but the regulatory atmosphere has to be healthy for a prosperous and flourishing industry. If everything right from the SMP/ Minimum prices to market prices, buffer stocks and export-imports are decided by the bureaucratic governments, then how promising the sector can be?
The Indian Sugar Industry has over the years enjoyed tremendous political patronage with its stakeholders forming powerful lobbies. Powerful political interests entrenched in state-level politics in states like Maharashtra and Uttar Pradesh have managed to prevent full decontrol of sugar prices. For a long time even government economists believed the system of partial decontrol served the needs of both farmers and poorer consumers.
The Government has yet to take a decision on the recommendations of Mahajan Committee report submitted in 1998, which include complete decontrol of the sugar industry. At present all sugar mills are required to pool 40% of their output as levy sugar at a price fixed by the Government for supply through the PDS. The Mahajan Committee has recommended that the levy be reduced to 20% next year and be abolished from the subsequent year. It has also recommended that sugar be taken off the PDS once it is totally decontrolled and that the sugar subsidy be added to the subsidy on foodgrains supplied through the PDS. Removing sugar from the PDS is a political decision that a coalition government may be reluctant to take. If sugar should continue to be supplied through the PDS, the Government can buy it from the mills at the market price.
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. There should be no role of government in the decontrolled regime, except announcing FRP for cane.
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 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.
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. 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.
This is the right time to move towards decontrol of sugar, especially when India is expected to have surplus production of sugarcane and sugar in 2010-11 and 2011-12.
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