Retail sugar price won't rise due to partial decontrol: K V Thomas

Interview with Food Minister

The decision on partial decontrol of the sugar sector had been pending for years. Earlier this month, the Cabinet abolished the levy sugar mechanism (under which sugar mills have to sell a specified quantity to the government at cheap rates) and freed the mills from any curb on sales. Food Minister K V Thomas tells Sanjeeb Mukherjee that less fluctuation in sugar production and reasonable price levels gave the government the confidence to go ahead with this major reform. Excerpts:

There has been a lot of talk about  partial decontrol of sugar sector and most people thought it would never happen due to the complexities involved. What changed now, that the government went ahead with the reform measure?

Well, sugar production in the 2011-12 sugar season (October to September) is estimated to be 26.35 million tonnes, which is two million tonnes more than the 24.3 mt in the previous season. Sugar production in 2012-13 season is estimated to be 24.6 million tonnes, which shows that the amplitude of year-to-year fluctuation in production has diminished. Moreover, the market price of sugar has remained at reasonable levels through the current sugar season. All these factors gave confidence to the government to go for partial decontrol of the sector.

A lot of people have questioned the timing of the decision to decontrol sugar sector as it comes just ahead of summer, when consumption of bulk consumers goes up. Will this decision not impact the retail price?

The decision will not have any impact on prices, as there is enough sugar in the country, with this year’s production expected to be around 24.6 mt against a requirement of 22.2 mt. The states will be free to purchase sugar through a transparent system at the current ex-factory price of Rs 32 per kg, which has been capped for two years.

At a time when the government is facing a financial crunch, do you think it is prudent to impose an additional Rs 3,100 crore subsidy on the exchequer?
There were two crucial issues which emanated from the C Rangarajan panel report that came up before the Cabinet Committee on Economic Affairs on April 4, 2013. The first was whether sugar should be continued as an item under the Public Distribution System (PDS). The second was that if sugar is to be continued in the PDS, does the current levy obligation on sugar mills need to be continued or for PDS supplies to be met through open market procurement? The options before the government were complex in that we not only had to take the state governments along but also look into other critical issues such as increase in procurement cost, problems related to market distortions, including delayed payment of cane price, and the subsidy burden. It was felt that removal of sugar from PDS was not feasible in the short term, as it has been in operation for some time and if distribution of sugar under PDS remains with the state governments, they need to be given some flexibility. The extra burden in terms of increase in subsidy due to dismantling of levy sugar mechanism will be around Rs 3,100 crore, excluding the distribution cost, on the Centre.

What were the options available with the Centre to bear this subsidy burden?
Well, we had a couple of options to continue distribution of sugar through PDS at a discounted price of Rs 13.50 per kg. The first was that the additional burden should be borne by the state governments from their own budgetary resources; the second was by consumers through paying the market price (which is around Rs 32-34 per kg), or the retail issue price of sugar to be raised from the current Rs 13.50 a kg and the third option was the Centre bears this subsidy. After careful consideration of all factors and their implications, it was decided that the Centre would itself bear the additional burden on distribution of cheap sugar through PDS, as it is part of its social welfare programme.