New Delhi: India’s R80,000-crore sugar industry, stifled by assorted government controls, might finally see some unshackling. A panel set up by Prime Minister Manmohan Singh is learnt to have decided to recommend the abolition of subsidised sugar supplies by mills and cooperatives for state-run welfare programmes.
If implemented, the move will leave an additional R2,500 crore to R3,000 crore a year with the cash-starved sector but will raise the Centre’s food subsidy burden correspondingly.
Currently, mills and cooperatives are mandated to sell 10% of their output to the government, called the levy sugar quota, at prices that cover just around 70% of the cost of production. This stipulation, tantamount to an impost, has undermined the growth of the domestic sugar sector, which has failed to attract any foreign direct investment for years now.
This and other regulations on sale, storage and cane price have led to a regular cycle of boom and bust in sugar production and also contributed to an inconsistent export policy. These have deprived Indian mills of the ability to be reliable suppliers in the export markets, dominated by Brazil and Thailand.
Profit at Bajaj Hindusthan, the country’s largest sugar producer, slumped by more than 76% to R12 crore in the year through September 2011.
Margins of other major producers like Balrampur Chini Mills, Simbhaoli Sugars and Triveni Engineering have also remained under pressure.
The panel, headed by Prime Minister's Economic Advisory Council chairman C Rangarajan, has held a series of meetings with different stakeholders and is expected to submit the report soon, sources said. Rangarajan wasn't immediately available for comment.
The levy sugar price is fixed at Rs 19 a kilogram, compared with the current mill gate rate of Rs 29. India, the world's largest sugar consumer, needs around 2.8 million tonnes of levy sugar a year.
"This (rationing of subsidised sugar) is a social welfare programme of the government. As in the case of PDS wheat and rice, where the cost of procurement is borne by the government, the burden of levy sugar should also be borne by the government, not the industry," said Indian Sugar Mills Association (ISMA) director general Abinash Verma.
"The difference between the levy sugar price and the non-levy sugar price will help in increasing the liquidity of factories, further helping them in clearing arrears on cane purchases from farmers," said Vinay Kumar, managing director of the National Federation of Cooperative Sugar Factories.
Efforts at lifting government control twice in the 1970s met fierce political resistance, mainly on concerns that domestic sugar prices would shoot up, and the issue was dropped. The benefits of liberalisation have also not been extended to the sugar industry, while the government has shed control over sectors such as telecom and cement over the years. Moreover, recommendations of panels, including the Tuteja committee and Thorat committee, set up in the past to consider decontrolling the sugar sector, were hardly implemented.
Still, industry executives this time around expect the Rangarajan panel's recommendations to be taken seriously by the government. "First, unlike other panels in the past, this committee is set up by the Prime Minister himself and the report will be submitted with him. Second, it is being headed by an economist equivalent of the rank of a minister of state, which was not the case earlier. So we are optimistic that any likely positive recommendations by the panel will be implemented in the right spirit this time," ISMA's Verma said.
Kaushik Basu, the chief economic advisor to the finance ministry and also a member of the panel, had said in March: "We are serious about this (sugar sector decontrol). Many countries like Brazil have really flourished and we want this to happen in India".
"The shared feeling is that the potential of this sector has not been realised in India. We will write a serious report," Basu had added.
Some others, however, adopted a cautious approach. "The fiscal deficit shot up to 5.8% of the GDP (gross domestic product) last fiscal and the government is trying to cut it to 5.1% this fiscal. In such a scenario, any subsidy outgo will add to the government's unease. So I won't be surprised if it delays the abolition of the levy mechanism beyond the current fiscal even if the panel recommends it," said a senior executive at an Uttar Pradesh-based sugar company, who didn't want to be named.
Industry executives said that after the submission of the report to the Prime Minister, the food ministry may move a cabinet proposal for this to be approved.
Sources said the panel may also suggest linking sugarcane prices to that of sugar and other by-products. In 2010, a committee headed by former food as well as agriculture secretary T Nanda Kumar had suggested that the price of sugarcane be fixed at 67% of sugar prices if the average recovery rate is slightly lower at 9.5%.
Hit by high cane prices — often used by state governments as a tool to woo voters in the farming community — and low sugar sales realisation, the cash-strapped sugar industry has renewed calls this year for the lifting of the government control over the sector. Domestic wholesale sugar prices have remained subdued around Rs 30 a kg for the most part of this year, despite a 17% rise in cane prices in the largest producer, Uttar Pradesh.
Apart from levy sugar, the government also decides on the quantum of sugar mills can sell in the market each month. It fixes the minimum price the mills have to pay for sugarcane purchases and also imposes periodical limits on sugar stocks large buyers can hold, to discourage hoarding in times of shortage.