Experts cautiously hopeful on sugar decontrol

Siddharth Tak and Rohit Joshi/ZRG

As expected the Union Cabinet’s decision to partially decontrol the sugar sector has been greeted positively by the industry. However, experts have kept their fingers crossed in relation to dilution of the spirit of the Rangarajan’s committee recommendations.

The Cabinet Committee on Economic Affairs (CCEA has cleared the long-standing sugar decontrol proposal but with riders. Consider the following riders:

Rider 1: There will be no levy obligation on sugar mills for two years. This is applicable for output since September 2012 and will be reviewed after watching its impact on the market and farmers for two years.

Recommendation of Rangarajan Committee: It was recommended to abolish levy sugar quota and monthly/quarterly release mechanism of non-levy sugar. There was no mention of time limit in his report.

Under the levy system, the Union government asks sugar mills to supply 10 per cent of their production as levy sugar for the Public Distribution System (PDS) at a discounted price. The sugar industry would save Rs 3000 crore per year from levy sugar abolition.

Welcoming the move, RK Gupta, chief general manger, Dwarikesh Sugar Industries, said, “Although the move taken by the government is a good one yet it can be termed as a half hearted effort. It is just a pilot project and they have initiated this move to improve the financial conditions of sugar mills so that payment of farmers can be made. Sugar being a politically sensitive commodity and next year there is election so government has its own political compulsions. In this context, it has taken a balanced and cautious move. The government in a way has diluted the recommendation of Rangarajan’s committee.”

In sync with Gupta, Rajshree Pathy, Chairperson & Managing Director, Rajshree Sugars & Chemicals Limited, said, “They are taking one step at a time and may be they are also in ‘wait and watch’ mode. However, if they have not put in this restriction then it might have hurt them politically.”

However, Abinash Verma, Director General of the Indian Sugar Mills Association (ISMA), argued, “Levy sugar obligation has been taken off for good and it is not going to get implemented back after two years. This two years timeframe is just for the subsidy calculation purpose.”

Rider 2: The ex-mill sugar price has been capped at Rs 32 per kg for Public Distribution System (PDS)

Commenting on this rider, Verma at ISMA, said, “The Cabinet decision is not against its recommendations. Rangarajan committee has not suggested ways to calculate the subsidy. The report has stated that state government should buy the levy sugar from open market and Union government should reimburse it in the form of subsidy. Therefore, Union government has to find its own way. It will calculate the subsidy at a maximum purchase price of sugar at Rs 32 per kg and therefore they have capped it at this price for the next two years.”

Reiterating once again that the spirit of whole issue has been diluted. Gupta at Dwarikesh Sugar, said, “In case, sugar price rises then liability will again come on sugar mills. The government has given industry a message that if market prices are more then some amount of burden has to be borne by the industry. The whole thing has not been left to the market.”

Rider 3: State government to decide on cane price and minimum distance criterion between mills

Recommendation of Rangarajan Committee: The key recommendations were a) removal of cane reservation and minimum distance criterion, b) 2-stage pricing of cane (instead of SAP) linking to revenue of mills.

Hoping for the complete decontrol of the sector in a phased manner, Gupta at Dwarikesh Sugar, stressed, “Cane price matter will still remain with the state government as there is a SC ruling stating the same but that is not to going to work for a long period. That is the area where liberalization has to take place. Industry wants that cane price should be linked to sugar realization and that is fair for all the stakeholders.”

However, Verma at ISMA, argued, “Today, the powers on cane area reservation, minimum distance criterion and cane pricing are largely being exercised by the state governments. Taking into account this, CCEA has just reiterated that state government would decide on this matter. In a federal structure, Union government can’t take away the powers of state government.”

“You have fixed the sugar cane as well as sugar prices and then what is left on the hands of sugar industry. This means you only make processing charges and how can an industry survive by earning processing charges?” cautioned Gupta.

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