The price of no reform

Uttar Pradesh govt has let politics take over sugar pricing

The sugar crisis in Uttar Pradesh is a clear product of a politics of division and brinkmanship that has been allowed to affect basic economic management. On Wednesday, in an effort to move beyond an impasse, Chief Minister Akhilesh Yadav announced that the state-advised price for sugarcane, at which sugar mills buy sugarcane from farmers, would be kept at the previous year's level of Rs 280 per quintal. But this is unlikely to appease private sugar mills in the state - 65 of the 99 such mills had informed the state government on Tuesday evening that they were suspending operations. While the mills said they couldn't afford to pay more than Rs 240 a quintal (they had paid Rs 280 a quintal last season), given the current price of sugar, farmer groups had lobbied for more - upwards of Rs 300 a quintal. The mills, which are struggling with losses and arrears to farmers, say they would rather shut down than buy sugarcane at a price that is unviable.

The key to the whole imbroglio is the state-advised price of sugarcane. Unfortunately, what ought to be purely administrative work has become a political decision. Successive governments have used it for political gains. Cane price, as a proportion of sugar price, has thus risen from 57.1 per cent in 2009-10 to 79.06 per cent in 2010-11, 81.36 per cent in 2011-12 and 88.88 per cent in 2012-13. The political dimension has become more important this year because the Muzaffarnagar riots have deeply polarised the Uttar Pradesh electorate. It is an open secret that Mulayam Singh Yadav, the Samajwadi Party chieftain, harbours ambitions to become the country's prime minister as the leader of a third front, after the United Progressive Alliance and the National Democratic Alliance. That is not likely to happen if his party does badly in its state stronghold. Thus, it has been argued that Uttar Pradesh's sugarcane farmers, crucial in 30 Lok Sabha seats, need to be kept happy. It is unfortunate that Akhilesh Yadav, who had come to power amidst a lot of hope last year, has not been able to ensure that electoral politics is kept out of the decision on cane pricing in the state.

And a framework for that already exists: the committee set up by Prime Minister Manmohan Singh to look into all issues related to decontrolling the sugar sector, headed by C Rangarajan, has said that instead of the state-advised price, the mills should pay farmers 70 per cent of the price of sugar and other by-products, or 75 per cent of the price of sugar. The higher the price of sugar, the more the farmers will get and vice versa. Karnataka in May legally adopted this revenue-sharing formula. Maharashtra, the largest sugar-producing state, has started the process to adopt it. Uttar Pradesh should have done that too; it would provide stability to the industry and iron out the huge fluctuations in sugarcane acreage in the state. If the Rangarajan formula is not accepted, the mills have demanded a subsidy from the state or assistance to raise a soft loan to pay off the arrears. This, if it happens, will be an absurd situation, one in which taxpayers' money is being used to score brownie points with farmers and keep sugar mills happy.