Government decontrols Sugar Industry

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Following the recommendation of the C. Rangarajan committee, Government has decontrolled sugar industry by abolishing the monthly release mechanism and requirement for private sugar mills to sell a specified amount of sugar (called levy sugar) to the government at concessional rates for subsidised distribution under the Public Distribution System, thus leaving it to market forces. Under the old system of regulated release mechanism state government regulated how much sugar a mill can sell in the market and under "levy" system a company is forced to sell 10% of the output at a loss to subsidise the PDS system.

New regime comes into effect for output since September 2012, the start of the sugar year, and will be reviewed after watching its impact on the market and farmers for two years. To continue subsidised supply to the poor, states will now have to buy sugar through a transparent system at the current ex-factory price of Rs. 32 /kg ( capped for 2 yrs) and will maintain the existing PDS sale price/ issue price of Rs 13.50/kg (not revised for a decade). Centre will pay the states difference between the purchase price and the issue price which is expected to increase sugar subsidy burden to Rs 5,300 crore from Rs 2,600 crore a year. However, the state government will continue to partially control the industry as it will still decide sugarcane prices and regulate various aspects of cane cultivation and sale.

Governmtent claims that the decision would not impact sugar prices as there was enough sugar in the country (last year production 26.5 million tonnes, this year, more than 24.5 million tonnes is expected as against a requirement of 22.2 million tonnes). According to government the step would ensure that farmers and consumers’ interests are protected in a balanced manner while Industry bodies feels that move would improve cost of production and improve liquidity with millers which in turn will ensure timely payment to farmers.

Recommendations of the Rangarajan Committee relating to cane area reservation, minimum distance criteria and adoption of the cane price formula has been left to state governments for adoption and implementation as considered appropriate by them.

Sugar production in India, the world's second biggest producer but the largest consumer, is estimated to decline to 24.5 million tonnes this year from 26.3 million tonnes in the previous year. The country annual domestic demand is pegged at 22 million tonnes.

ALSO SEE : Fair and Remunerative Prices and State Advised Prices (FRP , SAP) ; Commission for Agricultural Costs and Prices (CACP)

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