The government's decision to abolish the levy sugar mechanism would impose extra burden on the Centre to subsidise state governments. Food Minister K V Thomas told reporters that the Centre would pay the difference between the market price at which states bought sugar from the millers and at which they sold through ration shops. The difference will be paid up to the market price of Rs 32 a kg, and this subsidy burden has been capped for two years. The major reform measure would not jack up retail prices, he said. Edited excerpts:

On sale of sugar through ration shops:
States will purchase sugar from the open market through a transparent bidding process. Thereafter, they will sell it at the subsidised rate of Rs 13.50 a kg. The difference between the market price of sugar and the subsidised sale price will be compensated by the Centre. However, the compensation will be limited to Rs 18.50 per kg (Rs 32 - Rs 13.50), which is the market price. If states purchase sugar at a price more than Rs 32 per kg, they will have to bear the extra burden.

On the Centre's extra subsidy burden:
The Centre currently bears a subsidy of around Rs 2,600 crore per year on subsidised sale of sugar. It sells 1.6-2 million tonnes of sugar annually through ration shops. After the new mechanism is implemented, the Centre's subsidy burden will rise to around Rs 5,300 crore per year, an extra burden of around Rs 2,700 crore.

On capping subsidy:
The subsidy of Rs 5,300 crore has been capped for two years, till September 2014, as the Centre will bear it only up to Rs 32 a kg, which is the market price, at which states will buy the sweetener from the millers.

On excise duty and import, export tariff:
The CCEA (Cabinet Committee on Economic Affairs) did not take any decision on increasing excise duty on sugar or reviewing the import or export tariff to offset enhanced subsidy.

On other areas of decontrolling sugar - dismantling cane area reservation and distance criteria for sugar mills:
The issues fall within the domain of the state governments. The other reforms on bagasse and jute bags will be decided by the respective nodal ministries, petroleum and textiles.

On sugar prices:
Decontrolling sugar will not jack up the retail prices as India's annual sugar consumption is around 22 million tonnes, while production in 2012-13 is expected to be around 24 million tonnes. Of the 22 million tonnes of sugar consumed in India, bulk consumers such as soft-drink makers and others account for 14 million tonnes, while 60 million tonnes are consumed by the retail buyers.