Govt takes a step towards partial decontrol of sugar

Release order mechanism set to be scrapped, millers may not have to offer specific portion of annual outout for PDS sale

In a first step towards partial decontrol of sugar, the government is said to be preparing a Cabinet note to abolish the release order mechanism, which will free the sugar sector from its clutches.

The government is also preparing a second note to remove a mechanism under which millers have to set aside a specific portion of their annual output for selling through the Public Distribution System (PDS).

“There are two notes which are under preparation and the first one is almost ready,” an official told Business Standard.

Abolishing the periodic release order through which government determines the quantum of sugar that each mill can sell in the open market in a specified period, is one of the major bottlenecks in the faster growth of the Indian sugar sector.

At present, the government determines the quantum of sugar that each mill can sell in the open market every quarter or in some cases in six months. In the last three years, the government had released on an average 9.04 million tonnes of sugar in the first six months of the crop marketing season that starts from October.

However, in the 2012-13 season, the government initially approved the release of 10.80 million tonnes of sugar, which was later scaled down to 10.65 million tonnes.

A government-constituted panel, headed by the Prime Minister's Economic Advisory Council Chairman C Rangarajan, had also favoured abolishing the release order mechanism. Once, the cabinet approves the food department’s proposal, there won’t be any state control on the quantum of sugar that each mill can sell in the open market.

Officials said in the second phase, the levy sugar obligation, under which mills have to necessarily sell 10 per cent of their annual produce at cheap rates to the government for distribution through ration shops, will be taken up.

The subsidy for selling sugar at cheap rates through ration shops will then be borne by the Centre. The Rangarajan panel in its report has said states which want to provide sugar under PDS should procure the same from the open market through a competitive bidding process and also fix the price at which they want to sell this sugar through ration shops.

"The additional subsidy on account of this implicit cross-subsidy should then be provided by the Central government over and above the already existing subsidy along with rationalising the price of sugar which is distributed through the ration shops," the report had said.

These are the two steps that the Centre will take in decontrolling the sugar sector.

“The Indian sugar industry has been requesting for a phase-wise deregulation and the proposal being mooted by the government for sugar sale-side decontrol (by abolishing the release order mechanism) and sugarcane side decontrol in phase-2 (by abolishing the levy mechanism) would certainly be welcomed by the sugar industry,” a senior industry official, who did not want to be named, said.

The Rangarajan panel had also recommended the full decontrol of the sector which would require steps like removing distance criteria between two sugar mills and revenue sharing agreements between millers and farmers. These measures also involve state governments.