The government has taken the first step towards sugar decontrol by giving freedom to sugar millers to sell their output in the open market for two years, doing away with the present system of requiring mills to sell 10 per cent of their production to the government for the public distribution system at subsidised prices. The removal of the "sugar levy" for two years appears to be geared towards reducing opposition by state governments to the reform. During these two years, the Central government will pay the subsidy bill to state governments, who will buy sugar in the open market and sell it through the PDS. Hopefully, at the end of the two years, the government will also reduce the subsidy it gives or shift the burden to state governments that wish to continue the subsidy. Partial decontrol of the sugar industry is a step in the right direction as this industry remains one in which the policy of government interference in the market process has remained unchanged from the pre-liberalisation era. It would help to increase investment and growth in the industry.

This reform is one of the recommendations of the Rangarajan panel on sugar decontrol. Other recommendations include dispensing with the present system of regulated release of non-levy sugar in the market, which raises the cost of holding inventory. The panel also recommended the phasing out of cane reservation area to allow the emergence of a competitive market, a stable and low tariff regime for sugar trade and removal of other government-mandated requirements like packaging in jute bags. The economic survey had strongly recommended that the government adopt the recommendations of the Rangarajan panel to enable a growing and competitive market-based sugar industry.

The first step has been taken to move the industry towards a market price-based system. The next problem the government should look into is how to reduce the subsidy burden on the exchequer while ensuring the benefit of the subsidy reaches those it is intended for. At present, the government has not removed either the subsidy or the distribution of sugar through the PDS. Sale and purchase of sugar in the open market with sugar vouchers for BPL families or, even better, direct cash transfers with an estimated amount for sugar consumption, instead of an array of institutions that distort the market for sugar, would be the rational way forward.