Setting up of a high level expert committee to examine decontrol of the sugar sector and related issues has created a new buzz in industry circles. Whether the Government is really serious about decontrol is still a matter of conjecture, simply because this subject has been debated many times over and at least three committees in the past had examined the issue.

Talking of more recent times, it is common knowledge that policymakers have been dragging their feet over decontrol for the last ten years. Last time, the idea was mooted in 2002 and a statement was made in Parliament, setting a timeframe (October 2003) for decontrol; but nothing came of it. Some industry representatives are still sceptical about a positive outcome even this time, but it may be unfair to pre-judge the outcome.

Importantly, an industry leader told Business Line that, currently, the industry is truly united over the issue of decontrol and is unanimous in its quest for freedom. Be that as it may, the expert committee's terms of reference are not known as yet; but a few issues deserve close attention.

The case for abolition of the levy system as well as monthly free-sale quota argues for itself. There can be no two opinions that this is the bare minimum with which the process of decontrol must begin. The Government may purchase in a transparent manner the quantity of sugar required for public distribution system from the open market by floating tenders. If PDS supplies involve a subsidy, the same must be absorbed by the government.

Abolition of free-sale quota means there will be absolute freedom for the mills to market the sweetener. In their commercial judgment, mills will take a call on how much to sell, when and where. It is, however, important to evolve some mechanism by which growers are not kept waiting for payment of cane supplied. Cane arrears must become a thing of the past. Decontrol will and must put the onus of prompt payment to growers on the mills.

There is a belief, albeit erroneous, going around that sugar sector decontrol would mean abolition of statutory minimum price (SMP) for cane. There is absolutely no case for withdrawing SMP on cane. State Advised Price (SAP) is of course another matter. New Delhi must examine if through appropriate legislation SAP (upheld by the Supreme Court) can be done away with.

Simply put, in future, the industry's output price (sugar price) must be largely determined by the input price (SMP for cane) and not by restrictive marketing policies imposed by the government. For the sugar industry to expand in a healthy way, it is important that the cyclical nature of cane production is decisively broken. It would be naïve to believe that decontrol will achieve it. Conscious efforts to ensure sustained output of cane and efforts to increase cane yields in relatively low yielding regions (Uttar Pradesh, for instance) are necessary. The adverse effects, if any, of global warming and climate change deserve to be studied and remedied. The industry must be proactive in these matters in its own self-interest.

While decontrol means removal of restrictions and doing business in a free trade environment, the challenges currently facing the industry cannot be overlooked. First is the fragmentation of crushing capacities. There is need for consolidation which will lead to benefits accruing from scale economies.

Consolidation in turn will trigger investment in modernisation, something the industry needs. Rather than kneejerk reactions that we have had in recent years, steady trade and tariff policies are necessary for the industry to plan its future business. It is absolutely necessary that the trade policy is as free as possible. Foreign trade (import and export) must be kept open.

If need for regulation arises, the tariff mechanism (customs duty) should be used to encourage or discourage exim trade as the case may be. The expert committee will have to take a view of the long-term impact of decontrol on various stakeholders including growers, mills (private, public and cooperatives) and consumers. Given the composition of the committee, one can hope a holistic view will be taken with recommendations for end-to-end solutions.

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