Striking a balance between the interests of the Indian sugar sector and cane growers, a high-level expert committee under chairmanship of Prime Minister's Economic Advisory Council Chairman P Rangarajan today suggested a revenue-sharing model for determining sugarcane price along with dispensing with the levy sugar and distance criteria for sugar mills.
The Committee constituted by Prime Minister Manmohan Singh to study the regulations in the sugar sector and suggest a way forward in its final report has recommended that the Fair and Remunerative Price (FRP) as determined by the Central Government should be paid upfront to sugarcane farmers every years.
Following that after every six months sugar mills should share the revenue earned from selling sugar and also its byproducts like bagasse and mollasses in a proportion of 75:25 in favour of the growers. The price of sugar (ex-mill) and its byproducts for calculating this ration should be published by the state governments on a half yearly basis.
"The actual payment of cane dues to farmers will happen in two stages, first upfront when FRP is paid and second after six months when the ratio is calculated," Chairman of the Committee, P Rangarajan told reporters after releasing the report.
He said states which are willing to adopt this system of paying the sugarcane arrears, should then not declare the State Advised Price (SAP). At present, the Centre fixes a price of sugarcane which is known as FRP, but in most cases states have their own price (SAP), which is significantly higher than the FRP.
In other recommendations, the panel also suggested abolishing the levy mechanism, under which all mills have to mandatory sell 10 per cent of their annual produce to the Central government, which is then distributed to the poor families through the Public Distribution System (PDS).
The Committee instead said that states which want to provide sugar under PDS may henceforth procure the same from the open market through a competitive bidding process according to their requirement and also fix the price at which they want to sell this sugar through ration shops.
"The additional subsidy on account of this implicit cross-subsidy should then be provided by the Central government over and above the already existing subsidy along with rationalizing the price of sugar which is distributed through the ration shops," the report said.
"The central government will continue to distribute the around Rs 3,000 crore annual subsidy incurred in selling sugar through the ration shops, but it will go to the states, which will also enable them to bring down the procurement cost of states," Rangarajan said.
On cane reservation area, the Committee said that both the cane reservation area and distance criteria for mills, under which two mills cannot be set up within a distance of minimum 25 kilometers should be abolished.
"The cane reservation mechanism was meant to increase the per hectare sugarcane yield in the country, but it has failed to serve the purpose instead we have suggested that this should be abolished and in the long-run farmers should be encouraged to enter into long-term contractual agreement with mills," Rangarajan said.
On the release order mechanism, under which the Centre fixes the quantity of sugar that each mill can sell every quarter, the Committee held that it should abolished as the purpose of the regulation which was to end the seasonality in sugar prices no longer stands. "There is seasonality in every farm commodity, so there is no reason why only sugar should be subjected to this," Rangarajan said.
The Committee in its report also favoured a open export and import policy for sugar. It said that all quantitative restrictions on import and export of sugar should be removed.
"The Committee feels that trade policies on sugar should be stable and for that QRs should go but instead appropriate tariff in the form of a moderate duty on imports and exports not exceeding 5-10 per cent should be used as opposed to outright ban," Rangarajan said.
The panel felt that restrictions on free movement of molasses and bagasse imposed by state governments should be abolished. "We want that all byproducts of sugar should be available to all end-users at market determined price," Rangarajan said. It also suggested abolition of the jute packaging order for sugar.
"The recommendations if implemented will instead stabilise the volatile sugar prices," Rangarajan said.
Speaking on the same occasion food secretary Sudhir Kumar said, "we have received the recommendations and will now hold discussions with all relevant ministries and stakeholders and then take a final view on the suggestions. But there is not time frame in which we will implement the recommendations."
Chairman of Commission for Agriculture Costs and Prices, Ashok Gulati, former agriculture secretary Nandkumar, food secretary Sudhir Kumar, agriculture secretary Ashish Bahuguna and Chief Economic Advisor Raghuram Rajan are also members of the high-powered committee.
