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For a country that is the largest consumer of sugar in the world, India has one of the most regulated sugar industries. Virtually everything in the sector, from the location of sugar mills to the quantities of the sweet stuff they can sell is controlled. The net result is a largely inefficient industry.

There may be some light at the end of the tunnel. A committee headed by the chairman of the prime minister’s economic advisory council, C. Rangarajan, has recommended some steps to end this regulatory nightmare.

The three key interventions suggested by Rangarajan centre around the cane reservation area; the price of sugarcane and the issue of levy sugar. So far, every sugar mill in a particular area has to purchase sugarcane from farmers who raise the crop there. In turn, farmers have to sell to the designated mill. This is more of a “bonded labour" system than anything else. The committee has recommended the phasing out of this system. Instead, it suggests that mills and farmers enter into long-term contractual arrangements. This will permit flexibility for both.

Levy sugar has been another sticking point with the industry. All mills have to give up 10% of the sugar they produce to the government at pre-determined prices. This sugar is then routed to consumers through the public distribution system. The committee has recommended ending the sourcing of levy sugar from mills.

Perhaps the most far-reaching recommendation, and one that leaves many doubts, is that on the pricing of sugarcane. Currently, the Union government recommends a Fair and Remunerative Price (FRP) that is supplemented by the State Advised Price (SAP), decided by the state governments. Usually, the SAP is higher than the FRP. The committee has gone in for a complicated formula to determine a “fair" price for farmers based on sharing of profits apart from the usual calculation of costs. This is a controversial suggestion. Perhaps the committee also had to keep in mind the fact that sugarcane farmers are a formidable political force. A much simpler option would have been to let farmers and mills decide the price at which they want to sell and buy sugarcane. A long-term contractual arrangement, which the committee has recommended, would have taken care of this issue. A pricing formula brings back some of the distortions that the committee wanted to undo.

But overall, the committee’s recommendations are a positive step forward.

Can India’s sugar sector ever be freed of licence-era regulations? Tell us at views@livemint.com

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