Govt hikes levy sugar prices by Rs 58/quintal

The government has hiked levy price— the rate at which it buys sugar from mills for ration shops— by Rs 58 to Rs 1,904.82 per quintal for this year, a move which would increase subsidy bill by up to Rs 300 crore.

The government purchases about 28 lakh tonnes of sugar from millers to supply at subsidised rates through ration shops and para-military staff. It supplies the sweetener at Rs 13.50 per kg via ration shops. However, it is being sold at about Rs 35 per kg in the retail market.

"The average levy sugar price is fixed at Rs 1,904.82 per quintal for 2011-12 season (October-September), against Rs 1,847.05 per quintal last season," a senior official said.

An order in this regard would be issued this week, the official added.

Sugar mills are obliged to sell 10% of their production to the government to meet ration shops' demand.

Although the government has raised the levy price for the current season, it is still below the cost of production at Rs 2,800-3,000 per quintal.

The levy price of sugar is calculated on the basis of Fair and Remunerative Price (FRP), which stands at Rs 145 per quintal for the current season.

"The subsidy and transportation cost on levy sugar itself comes around Rs 3,000 crore. The increase in levy price would have an additional burden on the subsidy bill by about Rs 250-300 crore," the official said.

The total Food Subsidy Bill is expected to expand to Rs over 94,000 crore for the 2011-12 fiscal due to additional allocation of foodgrains.

The Food Corporation of India (FCI), the nodal agency for foodgrains procurement and distribution, normally buys levy sugar from mills and then distributes on behalf of the state governments.

For last few years, only 60% of the total 28 lakh tonnes of levy sugar is being purchased from mills to meet the ration shops' demand due to logistics problems and lack of funds with states.

Sugar production in India, the world's second-largest producer and the biggest consumer, is estimated at 24.5 million tonnes in the 2O11-12 marketing year. However, the industry has pegged sugar output at 26 million tonne.