The Government seems to have finally made up its mind on decontrol of the sugar industry, with Food Minister K. V. Thomas hinting at a decision as part of next week’s Budget proposals, if not earlier. Decontrol would imply two things. First, mills will no longer have to surrender 10 per cent of their output as ‘levy’ for the public distribution system (PDS). Since this sugar is currently impounded at about Rs 19 per kg — as against corresponding realisations of Rs 31 on open market sales — it amounts to mills subsidising the Government to keep the PDS going. Second, even for the balance 90 per cent, it is the Government that now decides how much each mill can sell (‘release’) every month in the open market. Dispensing with the ‘release mechanism’ along with levy obligation would give mills the freedom to do what they want with their sugar in an open market environment — which is how it should be for any industry.

Abolishing levy does not mean the PDS would be starved of sugar. The Government can procure its requirements from the open market or even float global tenders for the same. True, that may cost it an extra Rs 3,000 crore, which is also the loss that mills are bearing on supplying 2.5 million tonnes (mt) of levy sugar annually. But the higher subsidy outgo can be funded through an additional excise of 4 per cent on the entire 25 mt of annual production. Sugar today attracts a flat 0.98-per-kg excise duty, working out to slightly over 3 per cent. This is considerably lower than the rate on a vast array of mass consumer goods. Moreover, given an average monthly household consumption of 5-6 kg, shelling out Rs 1.5/kg more as excise — as is reportedly being proposed — shouldn’t really bite.

But the Government needs to move beyond sugar to even sugarcane decontrol. If mills are allowed to do what they want with their sugar, growers must also have the freedom to sell to the mill of their choice. Right now, this is not possible because each factory is assigned an exclusive cane area, on which no other mill can come up. It, thus, binds all growers in the area to supply to that particular mill. In order to ostensibly protect growers’ interest, the Government, then, gets into fixing the cane price to be paid by mills. As in the case of sugar, there is no reason why the Government should decide which mill a particular grower must supply to and at what price. Sugarcane decontrol would lead mills and growers to enter into mutually beneficial market-based contractual sourcing arrangements. The Government’s role in the event should at best be confined to overseeing and ensuring enforcement of these contracts. The very fact that mills require assured cane supplies, just as growers too desire some price certainty while planting a 12 month-long crop, may eventually make even this function redundant.