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Harish Damodaran

New Delhi, Aug 12 The Centre has put sugar decontrol on the backburner, following a flaring up of open market prices ahead of the festival season in an election year.

“The matter was discussed at the Union Cabinet’s meeting last Friday. A decision was deferred on account of opposition expressed by some Ministers, mainly from Kerala. Now, with elections approaching, the proposal is unlikely to be taken up during the current Government’s term and has for all practical purposes been shelved”, official sources told Business Line.

The proposed decontrol of the sugar industry involves doing away with the 10 per cent ‘levy’ currently imposed on production of mills, which is channelised for the public distribution system (PDS).

In addition, it is also envisaged to dismantle the monthly release mechanism governing the remaining 90 per cent so-called free sale quota (FSQ). While the FSQ represents the portion that can be sold in the open market, it is the Centre that decides (‘releases’) the quantum of such sugar to be offloaded every month by each mill.

In a decontrol scenario, mills will not be obliged to surrender any part of their sugar as ‘levy’ at pre-determined rates for the PDS. Also, they can choose both the quantum as well as timing of their sales, without awaiting specific FSQ ‘release orders’ from the Sugar Directorate.

As regards the PDS, the required quantity of sugar will have to be procured by the State Governments themselves from the open market. The Centre would, in turn, provide a fixed re-imbursement to the States for selling the sugar at below the market rates through ration shops.

“The dissenting Ministers felt that this would turn out to be political hot potato. There may be States (particularly opposition ruled), who will not float any purchase tenders and would find it more convenient to blame the Centre for decontrolling the industry and not allocating sufficient sugar for the PDS. We have already seen such allegations in respect of PDS rice and wheat, where too States have failed to procure on their own”, the sources said.

The scope for a political backlash against decontrol would be all the more in the current situation. Over the last one month, wholesale sugar prices have moved up by Rs 350-400 a quintal.

“Although much of this increase has to do with expectations of lower domestic production on account of reduced cane area and poor monsoon rainfall in Maharashtra, decontrol would provide further fodder for the Opposition”, the sources noted. They added that it was the suddenness of the price increase that has really put the Centre on the backfoot.

The Centre has projected sugar output in the ensuing 2008-09 season (October-September) to drop below 220 lakh tonnes (lt). This is as against the 265 lt (estimated) of 2007-08 and the record 283.28 lt of the preceding season.

More Stories on : Agricultural Policy | Sugar

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