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Partial Decontrol Of Sugar Sector; Prices Not To Go Up

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In a major reform, the Indian government partially decontrolled the Rs 80,000-crore sugar sector by giving freedom to millers to sell in the open market and removed their obligation to supply the sweetener at subsidised rates to ration shops.

Food Minister K.V. Thomas maintained that the decision will not lead to any increase in retail prices and said the government will continue to sell subsidised sugar through ration shops after procuring the sweetener from open markets.

The decision will lead to government's annual sugar subsidy doubling to Rs 5,300 crore, while industry will save about Rs 3,000 crore per year. The decision to partially decontrol the sugar sector, the only industry left under the government control, was taken by the Cabinet Committee on Economic Affairs (CCEA).

Mills at present have to sell a portion of the sweetener they produced at a fixed rate of about Rs 20 per kg to the government. After today's decision, they are free to sell all of their produce in the open market.

After buying sugar from mills, the government supplies to people via ration shops at Rs 13.50 per kg.

Following the decision taken by CCEA, headed by Prime Minister Manmohan Singh, states will now procure sugar from open market. The Centre will subsidise such state purchases up to Rs 32 per kg for two years (till September, 2014).

Thomas said the government subsidy outgo-- because of having to subsidise state purchases-- would rise from Rs 2,600 crore to Rs 5,300 crore per annum.

"Chini meethi thi, meethi rahegi (sugar was sweet and will remain sweet for common man)," Information and Broadcasting Minister Manish Tewari said when asked if the decision would lead to an increase in retail prices.

C Rangarajan, whose panel recommendations formed basis of the CCEA decision, said the decision was "sufficient incentive to the sugar mills". Industry body ISMA said the move would improve cost of production and improve liquidity with millers which in turn will ensure timely payment to farmers.

"The regulated release mechanism may be dispensed with immediately. Obligation of levy on sugar mills be done away with for sugar produced after September 2012," Thomas said.

Sources said the CCEA meeting saw some ministers raising concerns about inflationary pressure due to decontrol, Centre- state relations and operationalisation of PDS.

Under the regulated release mechanism, the Centre fixes the sugar quota that can be sold in open market. In levy sugar system, millers are required to contribute 10 per cent of their output to the Centre for ration shops at cheaper rate.

After removal of these two controls, Thomas said, "...the present public distribution system (PDS) system will continue at the same rate, same quantity. States are free to purchase sugar through a transparent system. The states will be mandated to sell sugar at current retail issue price (RIP) of Rs 13.50 per kg. The state will be given the subsidy for the balance amount between RIP and the current ex-mill price calculated provisionally at Rs 32 per kg," he said.

The ex-mill price will be capped at Rs 32 for 2012-13 and 2013-14 marketing years (September-October), he added.

The government supplies about 17-20 lakh tonnes annually through ration shops at subsidised price.

Asked if the government would increase excise duty on sugar to mop up revenue to meet subsidy, Thomas said, "CCEA has not taken any such decision. It has been left to the Finance Ministry to decide."

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

On increased subsidy, PMEAC chief C Rangarajan said: "I think it has to be managed... Some arrangements has to be worked out and let us see how this can be done."

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.