The Hindu Business Line : Govt plans stockholding limits for sugar

Temporary relief
Plans to reinstate stockholding, turnover period limits.
Unbranded sugar continues to retail at Rs 22-24/kg notwithstanding FSQ releases.
Increasing emphasis on revisiting physical controls and influencing prices through direct administrative action.
FSQ allocation at 42 lt, which is 23.5 per cent more than the 34-lt last year.

New Delhi , May 13

After cement, the Government is now apparently training its guns on sugar prices. With open market rates showing no signs of easing despite release of higher free sale quotas (FSQ) to mills, there is a `serious move' to bring back restrictions on the trade, including licensing of dealers and stockholding and turnover period limits.

"The proposal has been under consideration for some time now, though the Government is principally against any measure that is a throwback to the physical controls/licence raj era. However, with unbranded sugar continuing to retail at Rs 22-24 per kg notwithstanding enhanced FSQ releases, there seems no option but to reinstate controls on a temporary basis. This is more to send a message than anything else," highly placed sources said.

For April-June 2006, the Government has allocated 42 lakh tonnes (lt) of FSQ sugar to mills, which is 23.5 per cent more than the 34 lt released during the corresponding period last year.

Release mechanism

Current regulations require mills to dispose of their entire FSQ quantities within the stipulated period, failing which the unsold stock is converted as levy sugar for the public distribution system. "While the release mechanism forces mills to sell adequate quantities of sugar in the open market, there is no corresponding weapon to prevent hoarding or accumulation of stocks at the dealer end," the sources noted.

This was not the case till about five years ago, when only licensed dealers were permitted to stock sugar. Further, no recognised dealer could hold more than 100 tonnes at any point, with this limit set at 500 tonnes for sugar imported into the perennially-deficit Kolkata and its extended areas. Also, there was a turnover period of 30 days, forcing dealers to compulsorily rotate their stocks.

The stockholding and turnover period controls were lifted by the previous National Democratic Alliance (NDA) regime on August 20, 2001, while another order, dated February 15, 2002, abolished trade licensing sugar along with foodgrains and edible oils. These steps were taken at a time of dipping sugar prices and mills being saddled with massive inventories.

"Today the situation is opposite. Even the Finance Ministry, which has so far opposed any opportunistic return to controls, is now inclined to some temporary rollback of deregulation measures in the interests of price stability," the sources added.

Tyre makers' plea

The proposed move comes close on the heels of the Government issuing warnings to cement manufacturers to rein in prices or else face a cess or even a ban on exports. There is similar pressure being put by tyre makers for a ban on export of natural rubber as prices inch towards the Rs 100-per kg mark.

In all these commodities — not to speak of petro products — there appears to be an increasing emphasis on revisiting physical controls and influencing prices through direct administrative action. This is in contrast to the existing approach of fighting inflation through normal monetary tools and import liberalisation measures.

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