The Hindu Business Line : Time ripe for total decontrol of sugar sector

This perhaps explains why certain intolerance towards price volatility and change from status quo is discernible. Even the operation of normal market forces is looked at with suspicion.

Then, there are those who want the market to behave as they wish and not based entirely on demand-supply fundamentals.

High or low, sugar prices have become a matter of concern for the Government, not just producers and consumers.

There is little justification for the policymakers to be unduly worried about the sugar market.Not long ago - towards the end of last year - sugar prices soared past the Rs 2,000-a-quintal mark and sent New Delhi scurrying for cover.

Reacting in a knee-jerk fashion, the Government threatened action against suspected speculation, granted further sops to raw sugar importers by easing the export obligation norm and released additional quota for sale in the open market, to douse the bullish sentiment.

At that time, the futures market and players therein became the target of attack. Directions were given for a sharp hike in margins.

All this was done in the interest of consumers. Following the spate of threats and precipitate action, the seemingly overheated sugar market cooled.

However, in recent weeks, there has been concern again - that the market has cooled too much. At the futures exchange, the price is now as low as Rs 1,700 a quintal.

According to some, it is freezing. Prices are too cool for the comfort of many sugar producers.

The Government is anxious again. This time it wants the commodity futures market regulator Forward Markets Commission to investigate the reasons for the price fall and ascertain if the current prices are the result of excessive speculation or manipulation.

One is not sure what has happened to the oft-repeated statement of consumer interest protection when prices have turned really consumer-friendly.

It is anybody's guess what will come out of the probe; but sugar producers with stocks to sell would be happy because of the upside price potential that such a Government move is bound to create.

It is tragic that the policymakers want to call the shots in this commodity market, but are unwilling to come out with clear policy guidelines.

The Government must clearly specify a price band within which it wants to see the market move.

Threat of investigation of price movement betrays poor understanding of the commodity market dynamics.

It was a mistake to have allowed futures trading in sugar when controls and restrictions continued.

The exchanges too were in a great hurry to launch contracts without attempting to understand the implications of what they were doing. The onus is now on them to prove that things are above board.

The futures market is an extension of the physical market and does not exist independent of it. A free or unfettered cash market is a sine qua non for a healthy and transparent futures market. The pitfalls of introducing futures trading even when restrictions existed in the cash market were highlighted by Business Line on more than one occasion last year.

The sugar sector is ripe for total decontrol. The Government is committed to the removal of marketing restrictions such as levy and free-sale quota when the new sugar season begins on October 1.

Only when this market is completely free and unfettered would the economy get the right price signal. There are still apprehensions that total decontrol may be postponed further.

It would be tragic if the fear comes true. Unfortunately, there is nothing at the moment to suggest that the sugar industry is preparing itself for total decontrol.

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