The Government giving farmers and sugar mills the freedom to do what they want with their cane is the next logical step.

The Government has, finally, summoned up the courage to decontrol sugar, with mills being formally freed of the obligation to surrender a tenth of their output as ‘levy' for the public distribution system (PDS). Since this sugar was being impounded at about Rs 19 a kg, against average open market realisations of Rs 30, the levy abolition will generate additional revenues of Rs 2,700 crore, which until now mills were foregoing. The burden of subsidising PDS consumers will, henceforth, be wholly borne by the Government. Significantly, the Government has dropped the idea of imposing an additional excise duty to make up for the loss of levy sugar. Instead, States have been given the choice to procure their PDS sugar requirements from the market and sell through ration shops at the going rate of Rs 13.50 a kg. The Government will foot the entire price difference, assuming the States have the systems in place for procuring and distributing the sugar. Since most of them don't, the additional subsidy outgo may not work out all that much.

Apart from levy, the Government has also dispensed with the ‘release mechanism', under which it decides even how much of the balance 90 per cent non-levy sugar each mill can offload every month in the open market. By doing away with both levy and regulated releases, it has given mills the freedom to do what they want with their sugar – which is how it should be for any industry. So long as sugar is freely importable – the Government should resist any demand to raise customs duties – nobody can really object to the latest actions. On the contrary, the logical next step must be to allow mills as well as farmers to do what they want with their sugarcane. Mills presently are permitted to make alcohol only from molasses, which itself is subject to levy and movement controls to benefit the powerful country liquor lobby. Admittedly, it is the States that hold the key here. Nitish Kumar's Government in Bihar can probably take the lead in granting mills the flexibility to use the juice from their cane, whether for crystallising into sugar or fermenting into alcohol depending on relative price realisations. In doing so, he can turn Bihar into India's next sugar capital, even if it means sacrificing revenues from liquor in the short run.

The same goes for the powers of States in deciding which factory, and at what price, farmers in any particular area have to sell their cane to. This, too, should give place to a system where farmers can enter into contractual supply arrangements with mills of their choice. The very necessity for mills to secure assured cane supplies, and a similar desire among growers for reasonable price certainty while planting a one-year crop, will lead to mutually beneficial contracts. The States should, at best, have a role in overseeing and ensuring enforcement of these contracts.

(This article was published on April 5, 2013)
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