The Hindu Business Line : Sugar's sorry state

IT IS A pity the Government is in no mood to free the sugar sector from its vice-like grip anytime soon. This was clear from the recent statements made by senior ministers. The policy-makers' reluctance to decontrol the sugar sector, despite repeated assertions in Parliament and outside since 2002, came to the fore once again when the Agriculture Minister, Mr Sharad Pawar, said the Government would do so "at the right time". But neither did specify a time-frame, nor spell out the conditions that would lead to decontrol. Though the current restrictions — 10 per cent `levy' obligation and government regulated free-sale quota — are much less onerous than what they were a few years ago, they continue to stymie the natural growth of the industry which can be a vibrant segment of the food processing sector.

Originally slated for March 2003, sugar decontrol was postponed to October 2005 for reasons of excessive stocks, low prices and poor financials of sugar mills (mainly, cooperatives). Now, the situation is vastly different. Tight supplies, rising prices and raw sugar imports are the order of the day and market conditions have improved the profitability of mills. Yet, the situation is seen as not conducive for decontrol. Mr Pawar's stand — postponing a decision on total freedom to the sugar industry — is understandable because sugar cooperatives, especially in Maharashtra, are not doing too well, while private mills, especially in Uttar Pradesh, are performing creditably, as evidenced by their top- and bottom-line growth. But were steps taken in the last three years (since decontrol was last postponed) to strengthen the cooperative sector? Hardly. It is unclear whether even now there are any plans to address the structural and administrative issues confronting sugar cooperatives.

Interestingly, the Finance Minister, Mr P. Chidambaram, believes freeing sugar would mean decontrol of sugarcane too. But not necessarily. Today, the industry is facing a double-whammy — restrictions on both input prices and output marketing. While cane (input) prices are decided by the Centre in the form of the Statutory Minimum Price (SMP; and in some cases, an additional State Advised Price) there is marketing restriction in terms of the release mechanism. The free-sale quota is anything but free. There may not be a price restriction on this quota; but the marketing restriction itself does not lead to free market-determined prices. It makes both political and commercial sense to at least remove one restriction (the least painful one) — that is, on marketing — so that the open market prices of sugar move suitably in relation to input prices. Freeing cane prices is a politically sensitive issue. Sugar marketing decontrol need not be conditional upon cane decontrol.

The attempt should be to enhance the degrees of freedom for the sector as a whole, without compromising farmers' interest which is protected by the SMP. The Finance Minister needs to rethink his views on sugar decontrol. World over, sugar sector enjoys government patronage in some form or other. However, in India, such patronage is degenerating into protection of inefficiency. This must be remedied.