New Delhi: The Centre will bear an additional annual subsidy of Rs 2,600 crore on account of decontrolling the sugar sector only for two years, Finance Minister P Chidambaram said on Saturday.
Sugar decontrol will ensure timely payment of sugarcane growers, he said.
Earlier this week, the CCEA had partially decontrolled the sugar sector by giving freedom to millers to sell in the open market and removing their obligation to supply the sweetener at subsidised rates to ration shops.
Following the decontrol, Chidambaram said: "States are free to procure sugar through competitive bidding or otherwise sugar mills at a price or inclusive price not exceeding Rs 32 a kilo. The Government of India will bear the difference as a subsidy for two years."
He said the decision of decontrol was overdue and has been taken after nearly about 20-21 years.
"Now, this decision means that eventually the states have to make their own arrangements (for PDS sugar). But for a period of two years, we are supporting a transition arrangement," the Minister said.
Noting that the Centre's sugar subsidy will rise after the decontrol, Chidambaram said: "Some of you have pointed out correctly, the subsidy bill will go up. It will go up by approximately Rs 2,500-2,600 crore per year."
Presently, the sugar subsidy is around Rs 2,600 crore. Post decontrol, it would go up to Rs 5,300 crore.
"We have decided we will bear additional (subsidy) bill for 2 years in the interest of the farmers, who have demanded for long that the sector should be decontrolled," he said.
He recalled that during the P V Narasimha Rao regime, the government had nearly taken a decision to decontrol the sector. "But due to some reason, we pulled back at the last minute."
Asserting that decontrol will help farmers, Chidambaram said: "We believe now with this step, the cane growers will be paid price for sugarcane promptly and they will not be denied their dues when the money is due to them.
"To hold back the farmers' money for six months is virtually equal to driving him to death. So this is a major step that will benefit farmers as well the industry," he said at a press conference.
Chidambaram informed that during the CCEA meeting Agriculture Minister Sharad Pawar had said that sugarcane arrears at present are in the range of about Rs 11,000 crore, as against Rs 15,000-20,000 crore two-three years ago.
India is the world's second largest sugar producer after Brazil, and the biggest consumer. The output is estimated at 24.5 million tonnes in 2012-13 marketing year against an annual domestic demand of 22 million tonnes.