The Hindu Business Line : Centre mulling decontrol of sugar industry afresh

The path ahead
Final note on the proposal is expected in 2-3 months.
In the first phase, both the levy as well as the monthly release mechanism will be done away with.

Harish Damodaran

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New Delhi, June 9 The Centre is mulling over a fresh proposal for decontrol of the sugar industry. A draft note, recommending dismantling of the 10 per cent “levy” imposed on mills along with the “release mechanism” governing their balance 90 per cent free sale quota (FSQ), is currently before the Union Agriculture and Food Minister, Mr Sharad Pawar’s consideration.

Final note

“The draft note was sent recently to Mr Pawar, who will now take a call based on inputs and comments from other concerned Ministries (Finance, Commerce & Industry, etc). Once that is done, a final note would be prepared for the Cabinet, which could happen within the next 2-3 months”, official sources told Business Line.

Mills are now obliged to deliver 10 per cent of their production to the Government as levy for the public distribution system. Even for the remaining 10 per cent FSQ that can be sold in the open market, the Centre decides (‘releases’) the quantum of such sugar to be offloaded by each mill in a particular month.

1st phase

“The Centre favours phased decontrol. In the first phase, both the levy as well as the monthly release mechanism will be done away with. De-reservation of cane area, removal of restrictions on setting up of factories (including maintenance of a minimum 15 km radial distance between two mills) and other cane-specific reforms would be taken up in the subsequent phase”, the sources said.

The first phase may be implemented before the start of the ensuing 2008-09 sugar season (October-September).

Buffer stocks

An indication to this effect was the Centre’s recent decision to take the 20 lakh tonnes (lt) buffer stock – maintained through exchequer support for the period from May 1, 2007 to April 30, 2008 -- out of the FSQ once it lapsed.

“The factories were allowed to freely sell their individual buffer allocations the moment it lapsed. There were no separate mill-wise FSQ release orders for the dismantled 20 lt,” the sources pointed out.

A similar 30 lt buffer stock created for one year from August 1, 2007 is slated to lapse on July 31. “If this lapsed buffer quantity is also going to be permitted to be sold freely from August 1, it would clearly signal the Centre’s inclination to kick-start the decontrol process from the new season,” they noted.

While the industry is unanimously backing sugar decontrol, for the Centre (especially the Finance Ministry), the main concern is over any possible impact on prices in an election year.

Better timing

But given the overall comfortable supply position, any significant price increase is unlikely.

In fact, the present timing for decontrol could not be better, the sources held.

The opposition to decontrol may come more from growers, who would like it to be extended to cane. Currently, every mill has a cane area ‘reserved’ for it, with growers being bound to the particular factory, even if it pays a lower price or defaults in making payments. Sensing a buyer’s market for cane in the coming season, growers in parts of Uttar Pradesh have been preventing officials from entering villages for carrying out pre-reservation surveys.

Constraints

“The constraint for the Centre is this case is the existence of separate legislations regulating cane supplies in UP and Bihar. So, even if the Centre rescinds its own Sugarcane Control Order under the Essential Commodities Act, it cannot enforce cane de-reservation unless there is cooperation from the State Governments concerned”, the sources opined.

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