The Centre’s decision to stop cheap sugar through ration shops may backfire politically. Reason? The timing is questionable when market prices of the sweetener are at a very high level of about Rs 45 a kg.

In addition, the Food and Agriculture Organisation (FAO) has forecast a further increase in sugar and wheat prices globally.

Until 2013, the Centre was supplying sugar to the below poverty line (BPL) population, giving 500 gram per family member, at the rate of Rs 13.50 a kg. It was also bearing the entire burden of the subsidy. However, that year it decided to limit its share of subsidy at Rs 18.50 per kg and asked states to buy from the market and sell through the ration shops at whatever price they chose. In 2016-17, the Centre had incurred an expenditure of Rs 4,500 crore on account of the subsidy on sugar. However, the allocation on sugar subsidy has been curtailed to just Rs 200 crore for 2017-18, which is sufficient to clear previous dues to the states.

The overall subsidy burden on the government would go up marginally by 5 per cent in 2017-18. Total food subsidy for next year has been estimated at Rs 1,45,338.60 crore, up 8 per cent from 2016-17.

Since, the government projected the entire budget as pro-poor and for the benefit of the farmers, the decision to curtail sugar subsidy did not find a mention in the speech of the finance minister fearing a political backlash.

Food minister Ram Vilas Paswan had shot off a letter to the finance minister opposing the move to abolish sugar subsidy. Since the decision has been announced in the budget, Paswan has sidestepped the issue in his welcome statement.

The food mi­nistry is pla­nning to meet the subsidy from the sugar developme­nt fund (SDF), at least partially, so that the poor continue to get it at cheaper rates, sources said. But the rules to SDF are to be amended to enable the diversion of fund, they said.

The Centre collects excise duty of Rs 1.24 per kg of sugar sold by mills, which pass it to consumers, and that money goes to SDF. Su­gar mills get loans from SDF at a rate of 4 per cent interest for undertaking modernisation and diversification to ethanol and co-generation power plants.

Even if SDF is amended, it will be difficult to meet the entire Rs 4,500 crore needed for PDS sugar, a government official said, adding states have to share the burden, either partially or fully if they want to continue the scheme.

Meanwhile, FAO’s food price index has rebounded and it is feared that it may soon touch a two-year high. The index rose in January, led by sugar and cereals, even as global markets remain well supplied, FAO said in a statement.

The food price index was 173.8 per cent in January, its highest in almost 2 years, marking a 2.1 per ce­nt rise from the December va­l­ue and 16.4 per cent ab­o­ve its 2016 January level. The sugar price index sur­ged 9.9 per cent last mo­n­th, which FAO attributed to expected supply tightness in Brazil, India and Thailand.

The cereal price index too jumped 3.4 per cent from December, as rates of wheat, maize and rice have increased. The rise in global rice prices has been attributed to India’s procurement programme, as it reduces the quantities available for export. While 2016 marked the fifth consecutive year the index has fallen January saw its sixth-monthly increase in a row. Looking ahead, early production prospects for 2017 are mixed, FAO said.