Sugar free

The time for decontrol is here and now

There was a time when the price of almost every commodity was controlled. It was during the Second World War. When India’s post-Independence growth outpaced domestic supply of goods in the 1950s, free India’s policymakers drew on the experience of the war years to introduce rationing and price-controls. For half a century after that, price and distribution controls became, on the one hand, the symbol of Indian socialism and, on the other, the weaponry of a corrupt “licence-permit Raj”. Then came the plea for a “bonfire of controls” and in that early dawn of liberalisation, price controls on commodities like steel and cement disappeared. Few in today’s India can even imagine the control and permit Raj that defined cement sales and pricing barely a generation ago. The only really “non-essential” commodity to survive the era of liberalisation is sugar. Powerful political interests entrenched in state-level politics in states like Maharashtra and Uttar Pradesh have managed to prevent full decontrol of sugar prices. For a long time even government economists believed the system of partial decontrol served the needs of both farmers and poorer consumers.

Almost everyone ignored the wisdom of a distinguished economic policy-maker, Dr S R Sen, who chaired the famous Sugar Enquiry Commission, 1965, and recommended decontrol with a government-funded buffer stock. Sen took the view that “to enable the industry to pay the minimum price of cane to farmers, it is necessary to prevent sugar prices from falling below a certain level, just as to protect the interests of the consumers, they must be prevented from piercing a ceiling”. He saw a buffer stock as the appropriate mechanism through which the government would influence price trends in the market, rather than fix the final selling price. Such a buffer can easily be funded by the industry itself. This year, when output is expected to sharply increase, is a good time to fund and stock such a buffer. Politicians are also wrong to assume that millers do not have the interests of the growers at heart. Most successful sugar mills have long-term supply contracts that have helped both growers and millers. Normal market solutions must be found for a simple item of daily consumption like sugar. Apart from decontrolling sugar price, the government must also ensure cane farmers pay for the water they use. Uneconomic water pricing has encouraged cane cultivation, leading to the diversion of water away from food crops and to excessive tapping of groundwater. In a country confronted with a diabetes epidemic, there is no economic, ecological or epidemiological justification for sale of subsidised sugar to any section of the population.