The Hindu Business Line : Decontrol sugar

The Centre's sugar sector policies seem to be whimsical and designed simply to tide over crises without addressing the structural issues. New Delhi's response to the developments of the last several months reflects rather poorly on its market savvy. Else, what explains the wild policy swings — from duty-free imports of white sugar and ban on exports in July 2006 to easing of exports in December 2006/January 2007 or an incentive scheme in March to promote exports.

Who gained from these mood swings is unclear. Cane growers are far from happy because of the piling arrears of payment. Mills are upset as the loss of export opportunity in the face of large production has led to lower price realisations and, thereby, reduced profits. The consumer has so far enjoyed friendly prices, but risks losing out now, with the Government determined to liquidate the surplus through subsidised exports. Collection of cane output data and estimation of sugar production leave much to be desired. Major policy decisions that affect stakeholders' interests are taken on basis of suspect data.

It is time the Government stopped interfering with the sugar industry. Controls on the industry are anachronistic and vestiges of the quota-licence raj. The industry needs consolidation and modernisation. Large outlays are necessary, but investors are wary of the `politicised' environment. Total decontrol of the sugar industry is the way forward. The proposal has been hanging fire for long. Since 2003, policymakers have been trotting out weak excuses for continuing their vice-like grip on the industry. Without tinkering with cane pricing, the Government should free the sugar end of the value chain. The system of `levy' and `free sale quota' must go. While the Statutory Minimum Price will continue to protect grower interests, sugar prices at the other end will adjust to cane prices. Marketing freedom will ensure adequate availability of sugar for consumers. For the Public Distribution System, open market should be the source. At the slightest hint of shortage or rising prices, imports should be resorted to. A competitive free market for sugar will result in improved industrial efficiency.

When markets are freed, the weak may need help, at least in the initial period. Cooperatives are an integral part of the country's sugar sector. They are today enervated because no one bothered to leverage their inherent strengths. State fiat can protect them for some time, not forever. Structural issues such as consolidation of capacities, modernisation of operations and professionalisation of management have to be dealt with expeditiously. Affirmative action is needed to strengthen cooperatives; else they will turn fatally sick.

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