Government in favour of scrapping the regulated sugar release mechanism to benefit millers

This should sound sweet for the R80,000-crore battered Indian sugar industry. The Akhilesh Yadav-led Uttar Pradesh government has decided to back some of the industry’s demands on sugar decontrol, recommended by an expert panel set up by Prime Minister Manmohan Singh.

The state government is expected to make its stand clear to the seven-member Rangarajan Committee on sugar decontrol, which is headed by Prime Minister’s Economic Advisory Council chairman C Rangarajan.

Rangarajan will be in the city on Saturday and is likely to meet Yadav as well as other stakeholders such as farmers and mill representatives to chalk out a plan.

Talking to FE on condition of anonymity, a senior official said the UP government was okay with lifting four major regulations on sale and storage.

These include abolition of levy, doing away with the regulated release mechanism, allowing export of sugar and the compulsory storage of sugar in jute bags. It has, however, said no to two demands – scrapping of the state’s right to fix a price for cane and reserving cane areas.

“The state government is of the opinion that levy sugar should be immediately abolished. The move will cost the Centre approximately R2,500 crores, which it can easily bear, instead of asking the millers to bear the burden. It is also in favour of doing away with the regulated sugar release mechanism so that the millers are free to sell as much sugar as they want at a particular time. Both these steps would lift the burden off the sugar factories,” he said.

At present, mills have to sell 10% of their total output to the government as levy sugar quota and that too at prices that cover just around 60-65% of the cost of production. This, according to millers, is a big drain on them.

“No other industry in India has to bear the burden of the government's social programme. As with other commodities under the PDS such as wheat and rice, the government should buy sugar for PDS from the open market. The additional subsidy to the government would be around R2500 crore, which is very small compared to R80,000 crore food subsidy bill in 2011-12,” said Abinash Verma, director general of industry body Isma. “Sugar is the only industry to be told how much to sell each month. Mills cannot plan their cash flows and the high inventory burden on the sugar mills adds to the cost of production,” Verma said.

The compulsory packaging of sugar in jute bags is also a problem for the industry. “All we want is that the sugar industry be treated at par with other private industries like cement and fertilisers. The Jute Packaging Materials Act, 1987 covered food-grains, cement, fertiliser and sugar. While cement was excluded from Act in 1998 and fertilizers in 2001, food-grains, being in the public sector, procure 60% of jute bags at an administered price announced by the government every month. Sugar, however, was provided with no such price protection as it is in private sector.

Moreover, not enough raw jute is available in India for the compulsory packing of sugar in jute bags. Not just that. The cost of a 50-kg HDPE bag is R15 a bag, while a jute bag of similar size costs R35. It translates into an increase of 40 paise/kilo of sugar – a revenue loss of R1,000 crore to the sugar industry. We have been demanding for long that sugar should be completely removed from Jute Packaging Materials Act,” said Verma.

As far as fixing the cane price and reserving cane area is concerned, the state government feels it has control. “The state advised price (SAP) is the defined price that the farmer should get and is arrived upon after taking in view all the existing circumstances of the farmers. Even the HC has upheld the state's right to fix the SAP as against the FRP fixed by the Centre, which has no relation to the farmers’ existing circumstances. We need to protect our 40 lakh farmer families against cartelisation,” said the official.

Most millers are also not in favour of reserving cane area. “It will again allow cartelisation of cane areas by a few big millers at the cost of the smaller ones. It can also lead to a major law and order situation, which we cannot allow,” said the officer.