The Government may impose an additional excise duty of Rs 150 a quintal on sugar as part of the measures to decontrol the sector over the next few days. The current excise duty on sugar, including the sugar development fund and education cess, stands at 98 paise a kg.
The Government expects the proposed hike in excise duty to reduce its financial burden on levy sugar sales.
The Food Ministry has moved a Cabinet note on decontrolling the highly regulated sugar sector. Sources said the Government favours scrapping the release-order mechanism and doing away with the levy obligation immediately, broadly in line with the Rangarajan Committee recommendations.
Such a move would help millers better manage their inventories and cash flows, besides saving them the levy burden of around Rs 3,000 crore annually. As a result, the proposed hike in the excise is unlikely to result in sugar becoming costlier, millers said.
Of the 24 million tonnes (mt) of sugar produced in the country, levy sales account for around 2.7 mt and open market sales, around 20 mt.
At present, the Centre sets the quota that millers can sell in the open market under the regulated-release mechanism. Sugar factories, under the levy system, are obliged to sell 10 per cent of their output at a lower price of Rs 19.04 a kg to the Government for sale through the public distribution system (PDS).
The Government sells the levy sugar at Rs 13.50 a kg to poor families under the PDS, incurring a subsidy burden of around Rs 2,500 crore annually.
According to sources, the Government hoped to regulate the exports and imports of the sweetener through a tariff mechanism. An inter-ministerial group may take a call on the tariff structure, based on the prevailing prices — both local and global.
Last week, Food Minister K. V. Thomas had hinted that decontrol could be part of the Budget announcement. The Food Ministry expects more consultations with the States on issues relating to rationalisation of cane pricing, abolition of cane area regulation, and scrapping the minimum distance criteria for setting up mills.