New Delhi: Sugar cane farmers must be paid 70% of the value of sugar and its by-products that millers produce, a committee advised in its report submitted to Prime Minister Manmohan Singh this week, in what could highlight the need for radical changes in the heavily regulated sector if adopted.
“We are saying that it should be on a revenue-sharing mechanism... This won’t result in cane arrears building up as we have seen in the past,” C. Rangarajan, chairman of the Prime Minister’s economic advisory council and head of the committee on sugar sector deregulation, said at a press conference on Friday.
Among other recommendations, the committee suggested long-term contracts between cane growers and millers, dismantling of the levy obligation for sourcing sugar for the public distribution system at a price below market levels, and exports of sugar at modest tariffs.
The report was submitted to Singh on Wednesday and will now be examined by the food ministry, after which it will go to the cabinet. Rangarajan said it was “difficult to give it a time frame”.
The committee was formed in January as the sugar industry, despite being able to fulfil the demand in the country, has not been able to achieve the desired growth on account of various regulations that dog the value chain ranging from production to distribution.
Controls exist on the pricing of sugar cane, with both the Centre and the states setting minimum prices and also a levy obligation on every miller, under which he sells 10% of his sugar output to the Union government at a low price.
Even the non-levy sugar faces restrictions on how much must be released in the market, with the objective of keeping prices under check.
However, getting the recommendations off the ground may be a long process, Rangarajan and the other members of the committee said, as the report needs to be cleared by the cabinet and other ministries as well.
“The nodal ministry looking at this report will be the ministry of consumer affairs, food and public distribution,” said T. Nandakumar, member of the National Disaster Management Authority, a committee member. “The food ministry needs to look at the impact on ethanol and other things, and then forward it to the cabinet.”
A member of the sugar trade was sceptical the committee’s suggestions would be implemented as at least three other such reports on decontrol haven’t been adopted.
“The Rangarajan committee’s report is a positive move, but how it will be implemented is yet to be seen,” said Kamal Jain, managing director of Kamal Jain Trading Services Pvt. Ltd, a sugar broker that also exports.
There is also a chance sugar millers may resist change, especially giving 70% of their revenue to farmers, Nandakumar said.
“They (millers) might have their views,” he said. “But this is the best way for them. The more efficient millers will have a better module (for increasing revenue).”
India is the world’s largest consumer of sugar and the second largest producer of the commodity, and the fact that sugar is notified under the Essential Commodities Act, 1955, makes it difficult for policymakers to introduce changes.
India started 2012-13 with 6 million tonnes (mt) of carry-forward sugar stocks and is likely to produce 24 mt of sugar in the new year despite an estimated drop in Maharashtra, the largest sugar producing state, according to a Reuters report. Local consumption is pegged at 22.5 mt.
Rangarajan said his report shouldn’t be deemed as one on “deregulation” because it only sought to improve upon the existing rules. At the same time, he said, sugar should be treated like any other commodity as it has the same seasonal cycle and, therefore, curbs on it should be lifted.