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Freeing the sugar sector

Freeing the sugar sector
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First Published: Wed, Jan 05 2011. 08 23 PM IST
Updated: Wed, Jan 05 2011. 08 23 PM IST
If there is one story of the government’s efforts to “control” prices and making a mess in an entire sector, it is the story of sugar. The government pretty much controls everything: from what prices sugar manufacturing units must pay farmers for sugar cane, to what percentage of sugar these factories must hand over to the government (at a pre determined price, of course) to the movement of sugar. Even what can be sold “freely” is not so free: The government sets quotas of the sweet stuff, the so-called levy quota. A reading of the Sugarcane (Control) Order, 1966, and various amendments to it illustrates the meaning of the expression “draconian” very well.
The results have not been happy. Farmers continue to clamour for higher prices, sugar manufacturers lobby hard with politicians to ensure that increases in the Fair and Remunerative Price (FRP) (earlier known as the Statutory Minimum Price) are not beyond their means and consumers often have to face sharp swings in prices. This when India is the second biggest producer of sugar cane in the world.
This may change. As reported in Mint on Wednesday, a Union government-appointed committee, led by economist C. Rangarajan, has made certain recommendations to sort out some of the problems. For one, it wants to move to a uniform pricing regime in an effort to prevent state governments from setting exorbitantly high cane prices, something they often do to placate the powerful sugar cane farmers’ lobbies. It is interesting that this step is being envisaged now, a year before Uttar Pradesh, the state with the largest number of sugar cane farmers in India, goes to polls. The government may also ease rules on setting up sugar factories. At the moment, there are severe restrictions on this count.
Perhaps, most importantly, it has recommended the doing away of the levy sugar system, a pernicious relic of the licence-quota raj.
Ideally, almost all control structures in the sector should be done away with. But since the system has evolved over a period of time, “shock therapy” of this kind may cause serious problems during the transition. What the government needs to do is to draw up a checklist of reforms/measures that need to be introduced and then sequence them. It should be bold in initiating these changes. For unless this is done, the danger is that what the Rangarajan committee has recommended may turn out to be another set of piecemeal “reforms” that only prolong the misery of all the stakeholders in the sugar sector.
Piecemeal changes or bold reform: what does the sugar sector need now? Tell us at views@livemint.com
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First Published: Wed, Jan 05 2011. 08 23 PM IST