Indian sugar mills association

PM forms committee to look into sugar sector decontrol

Date:	28 Jan 2012

Source:	The Financial Express

Reporter:	FE Bureau

News ID:	886

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New Delhi: Prime Minister Manmohan Singh has appointed an expert committee, headed by his Economic Advisory Council Chairman C Rangarajan, to examine “all issues” on loosening the decades-old government control over the sugar sector.

The move followed top sugar industry executives’ meeting with Finance Minister Pranab Mukherjee earlier this month to seek freedom at least from the mandatory supply of the sweetener by the industry at below cost for state-run welfare programmes—also known as the levy obligation— and the monthly sale quota. These apart, the government also decides the minimum price the mills have to pay for sugarcane purchases from farmers and imposes periodical limits on stocks large buyers can hold to thwart hoarding. The sector has been under the government control since 1940s.

Singh’s intervention in the thorny issue is also perceived to reflect the view that the ministries concerned—agriculture and food—have not been able to resolve the matter and create an atmosphere conducive for investments. A few days ago, the PMO had set up a committee of secretaries headed by PM’s principal secretary Pulok Chatterjee to remove the hurdles for investments in infrastructure, after the ministries concerned were seen to be unequal to the task.

Sandwitched between high cane prices—often used by state governments as a tool to woo voters in the farming community—and low sugar sales realisation, the cash-strapped sugar industry has renewed calls this year for lifting the government control over the sector. Surplus sugar stocks for a second straight year have kept domestic prices subdued for more than six months now despite a 17% hike in cane prices in the largest producing state of Uttar Pradesh.

“It (the committee) has been requested to complete its task as early as possible and give its recommendations to the Prime Minister,” a statement by the Prime Minister’s Office said on Friday, without specifying any time frame for the submission of the report. The committee comprises food secretary BC Gupta, Agriculture Secretary P.K. Basu, Chief Economic Adviser to the finance ministry Kaushik Basu, former agriculture as well as food secretary T Nanda Kumar, chairman of the commission for agricultural costs and prices Ashok Gulati and Economic Advisory Council Secretary KP Krishnan.

“The Committee has been empowered to involve such experts, academics as required as special invitees,” the statement said, adding that the food ministry would provide the necessary support to the committee in “discharging its functions”.

In late 2010, the Prime Minister had set up a four-member committee under Rangarajan to look into the issue of linking cane prices to the sugar rates. “In a sense, the present committee is an extension of the earlier committee, and may look into all issues relating to the sugar sector,” said a source, who didn’t want to be named. In May 2011, food minister KV Thomas had written to the Prime Minister, suggesting that the Rangarajan committee look into all issues concerning the sector, he added.

“The industry welcomes the constitution of such a committee consisting of several experienced and senior government officials. We hope for some positive outcome quickly, which will be in the interests of both the farmers as well as the industry,” Indian Sugar Mills Association director general Abinash Verma told FE. “We are ready to pitch in whenever the committee needs our participation in whichever way,” he added.

Share prices of key sugar companies have been hammered by up to 70% since the beginning of 2010-11, significantly underperforming the Sensex, as various controls and dwindling returns on sugar sales bled their balance sheets.

The levy obligation alone cost R2,500 crore to R3,000 crore a year to mills as they are mandated to sell 10% of their output to the government at around 60% of their cost of sugar production at current prices. The government’s control over how much sugar mills will sell in the open market each month compounds their worries as a failure to complete sales within the month could result in a conversion of the unsold quantity into the levy quota.

The committee’s recommendations will be assessed by either an interministerial panel or the Cabinet before any decision is reached. Analysts, however, are sceptical about a complete decontrol of the sector anytime soon as the Centre will need to take producing states such as Uttar Pradesh on board as they fix cane prices over and above the rate determined by the Central government within their respective territories. The Supreme Court is currently hearing a plea as to whether the states have a right to fix cane price over and above the one set by the Centre. “It will be a landmark judgment because it will show the way towards a complete decontrol of the sector,” said a sugar analyst.

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