Govt may allow states to raise PDS sugar prices

Government has decided to compensate states for selling sugar at cheap rates

The government is examining a proposal to allow some states to increase the retail price of sugar sold through the Public Distribution System to lower their subsidy burden. Officials said the proposal was being considered after many states complained the uniform subsidy of Rs 18.5 a kg fixed by the Centre as reimbursement for selling sugar at cheap rates was inadequate, as the procurement price was much higher.

Following its decision to abolish the levy sugar mechanism as part of its proposals to decontrol the sector, the government decided to compensate states for selling sugar at cheap rates. The subsidy has been calculated assuming the purchase price of sugar by states at Rs 32 a kg, and the selling price at Rs 13.5 a kg.

"This mechanism, which was recently approved, does not include transportation costs, etc, particularly in states that do not have sugar, which is why a proposal to this regard is being thought of," said an official. He added states might also be allowed to purchase sugar from the open market at tenders priced at more than Rs 32 a kg, after many states expressed their inability to purchase sugar at the pre-determined price of Rs 32 a kg.

Officials said according to norms, the Centre would reimburse the subsidy on the sale of cheap sugar through ration shops on a quarterly basis—for regular sales and extra allocations for festivals. However, the Centre’s subsidy reimbursement would be limited to the quantity based on existing allocations.

Last month, the Cabinet Committee on Economic Affairs had abolished the levy sugar mechanism, under which private millers sold a specified quantity of sugar to the government at concessional rates.

The CCEA chaired by Prime Minister Manmohan Singh also dismantled the regulated release mechanism, as per which mills where allowed to sell only specified quantity within a fixed timeframe.  
 
As per the mechanism decided by the CCEA, the state government will have to purchase sugar from open market through a transparent bidding process for sale through ration shops and the differential amount between the market rate and price at which the sugar will be sold through ration shops will be reimbursed by the Centre.  

 
The reimbursement however will only be up to Rs 18.50 per kg for two financial year that 2013-14 and 2014-15, irrespective of the price at which the states purchase sugar from the open market. The Central government will bear an additional subsidy of Rs 3,100 crore over the existing over Rs 2,000 crore because of its decision to bear the subsidy.