To lessen the subsidy burden on the exchequer, the government is considering a proposal to increase the retail price of sugar sold through ration shops.
“The proposal has been forwarded to the Union Cabinet for consideration during its meeting scheduled for Friday,” a senior official said.
He said the annual subsidy on cheap sale of sugar through ration shops would come down if the rate was increased from the current Rs 13.50 per kg to almost Rs 23 per kg.
The price of Rs 13.50 was fixed in March 2002.
The government annually bears a subsidy of Rs 1,330 crore on the sale, buying from mills at Rs 19.05 per kg, much less than the market rate, and then sells at a still lower Rs 13.50 per kg, thereby incurring a subsidy of Rs 5.55 on every kg sold.
Sugar mills are are legally compelled to sell a tenth of their annual output to the government for this sale through ration shops.
The subsidy burden has risen sharply in recent years because the price at which the government purchases sugar from mills for distribution through the Public Distribution System (known as the ex-factory levy sugar price) has increased by a little over 40 per cent since the 2008-09 crop marketing season, but the price at which it sells through ration shops has been kept constant.
The subsidy could inflate further since the price of sugarcane has been raised by 17 per cent for the new season beginning October; the sugar season runs from October to September.
The government sells about 200,000 tonnes every month through the Public Distribution System. The food ministry had raised this issue with an Empowered Group of Ministers in June 2010, in September 2010 and also in December the same year. However, the idea was deferred due to high food inflation.
Officials said another proposal to allocate around Rs 2,000 crore for computerisation of the Public Distribution System could also be considered by the Cabinet.