The Cabinet Committee on Economic Affairs (CCEA) on Tuesday deferred a decision on loosening the decades-old state control over the R80,000-crore sugar sector, a senior government official said.

“No new date has been fixed yet for taking up the issue,” the official told FE.

As part of its efforts to partially decontrol the sector, the food ministry had moved a proposal seeking freedom to mills from supplying subsidised sugar for state-run welfare programmes — known as levy sugar — in accordance with the recommendations of a panel set up by Prime Minister Manmohan Singh last year.

If implemented, the scrapping of levy burden would leave around R3,500 crore more a year with the cash-starved sugar industry, but it will also raise the Centre’s food subsidy burden accordingly. At present, mills are mandated to sell 10% of their output to the government for the public distribution system at cheaper rates that cover just around 70% of their cost of production.

The ministries of food and agriculture have favoured an increase in the excise duty on sugar to offset the additional subsidy burden in case the government decides to abolish the levy burden for mills, although the finance ministry has reservations on the matter. At present, the excise duty on sugar is R710 per tonne, and the Centre requires around 2.7 million tonne of sugar a year for its welfare programmes.

However, some officials are concerned that any rise in the excise duty would not just drive up sugar prices for consumers, but also make it dearer for purchases related to the government's welfare programmes as well.

At present, the government offers roughly R19 per kg to mills for levy sugar, compared with the ex-factory price of around R32. The Centre further subsidises sugar to supply to the poor through ration shops at R13.50 per kg.

In October last year, the expert panel chaired by Prime Minister's Economic Advisory Council chairman C Rangarajan had submitted the report and also pitched for the scrapping of the release order mechanism through which the government controls sugar sales in the open market.

The panel also suggested linking of sugarcane price to rates of its byproducts, and recommended that 70% of ex-mill prices of sugar and each of its three major by-products — bagasse, molasses and press mud — be paid to farmers for cane supplies. The benchmark price fixed by the Centre — also called the fair and remunerative price (FRP) — be the minimum price for cane purchases, it added.

It also recommended a ‘stable’ export and import policy on sugar and ‘appropriate tariff in the form of a moderate duty on imports and exports, not exceeding 5% to 10% ordinarily, as opposed to outright ban or quantitative restrictions, should be used to meet the domestic requirements of sugar in an economically efficient manner’.

All sugar and spice

Mahajan Committee (1998)

BB Mahajan, former food secretary

* Remove levy obligation of mills; government should bear the subsidy on PDS sales

* Go for full decontrol, but in a phased manner; lift control on sugar sales in the open market

* Annual sugar export quota be fixed at 1 million tonne

Tuteja Committee (2004)

Sk Tuteja, former food secretary

* Levy sugar obligation at 10% of mills’ output should continue

* Lift control from October ’05 on sugar sales by mills in the open market

* Mills be allowed to sell levy quota in the open market if states don’t lift in three months

Thorat Committee (2009)

YS Thorat, former chairman, Nabard

* Lift control on sugar sales in the open market in a phased manner

* Sugar industry should be given 3-5 years for decontrol

* A long-term stable policy for export and import of sugar required

Rangarajan Committee (2012)

C Rangarajan, chairman, PMEAC

* Scrap levy sugar obligation and give mills the freedom to sell in the open market as per their wish

* 70% of ex-mill prices of sugar, bagasse, molasses and press mud be paid to farmers for cane chases

* Stable exim policy needed; up to 10% of duty desirable, if needed, on exports or imports instead of ban