One of the last regulated industries may soon find its wings, if the Rangarajan Committee’s suggestions are accepted by the Government. The committee has recommended deregulation of the sugar sector by giving freedom to mills to sell sugar in the open market.
It has also suggested doing away with the system of mills providing sugar for the public distribution system, under which the mills are required to offer 10 per cent of their production to the Government at below market prices.
The committee, headed by the PMEAC’s (Prime Minister Economic Advisory Council) Chairman, C. Rangarajan, said: “Rationalisation of sugarcane pricing and liberalisation of sugar trade need to be introduced over a two-to-three year period, in a calibrated and phased manner. However, levy sugar obligation and administrative control on non-levy sugar need to be dispensed with immediately.” The committee submitted its report to the Prime Minister.
Levy sugar is meant for distribution through ration shops, while non-levy sugar is for sale in the open market.
The Centre fixes the quantity of sugar that mills can sell in the open market and ration shops every month on a quarterly basis. While other sectors of the economy have been freed, the sugar industry continues to remain under the government control, right from the level of production to distribution.
“Markets in almost all sectors in India are constantly matching anticipated demands with supply. There is no particular reason why sugar market would not be able to do this,” the Committee said.
The mechanism of regulated release of non-levy sugar imposes costs directly on mills (and, hence, indirectly on farmers) on account of inventory accumulation and inability to plan cash flows, the committee said.
“Since this mechanism is not serving any useful purpose, it may be dispensed with,” it said.
The committee has dealt with the issue of remuneration to farmers for sugarcane, while keeping the financial condition of sugar mills in the mind. It advised change in the existing system by paying fair and remunerative price (FRP) as minimum price to the farmers at the time of cane supply.
Further, it has suggested revenue share mechanism in place of the ‘tried but failed’ profit sharing mechanism.
“On a half-yearly basis, the state government concerned would announce the ex-mill prices of sugar and its by-products, and farmers would be entitled to a 70 per cent (75 per cent in case of combined value of sugar and its by products) share in the value of the sugar and by-products produced from the quantity of cane supplied by each farmer,” it said.
The farmers will get money after deducting FRP already paid while remaining will go to the sugar mills. Since the sugar value estimate includes return on capital employed, this implies that farmers would also get a share of the profits.
With such a system in operation, states should not declare any state administered price (SAP), it advised.