Partial decontrol of Sugar industry

Sugar prices are set to see greater fluctuation through the year with the government deciding to partially decontrol the Rs.80,000-crore trade.
The Cabinet Committee on Economic Affairs (CCEA) decided to do away with the regulated release mechanism and the obligation of levy on sugar mills, leaving the decision on cane area reservation, minimum distance criteria and adoption of the cane price formula to the state governments.
The regulated release mechanism gave the Centre the power to fix the amount of sugar mill owners could release in the open market. This would help the government check the vagaries of demand for sugar and supply of cane.
The levy on mill owners ensured that 10% of the output was provided to the government for supply to the poor through the public distribution system.
After the CCEA meeting, Union food minister K V Thomas said, “The regulated release mechanism may be dispensed with immediately. The obligation of levy on sugar mills has been done away with for sugar produced after September 2012.”
The Cabinet note for the meeting had admitted that the unshackling of the sugar industry would lead to fluctuations in the price of sugar just as it happens with other crops, but suggested that consumers would get habituated to it with time.

Historically, the demand for sugar has risen during festival periods between October and January. Thursday’s decision will lead to an additional subsidy burden of Rs.3,100 crore on the government, leading to an overall bill of Rs.5,300 crore annually at present rates and volumes of supply. The government has decided to ask state governments to purchase their requirement of sugar for PDS from the open market and reimburse them for the difference in prices based on their existing share in the levy sugar supply.
Thomas said, “The government will bear the difference between the ex-mill price of Rs 32 per kg and retail sugar price of PDS at Rs 13.50 per kg.”
The government’s decision comes after a committee under C Rangarajan, chairman of the Economic Advisory Council to the Prime Minister, submitted its report recommending that sugar trade be put completely to market forces.