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Panel recommends sugar decontrol, scrapping levy

Decontrol of sugar and scrapping of the present sugar levy on the mills are among various recommendations made by the BB Mahajan Committee on sugar industry.

Former food secretary B B Mahajan, heading the 17-member high-powered committee, submitted his report to Food Minister S S Barnala, which suggested that if the government wanted to continue with the public distribution system supply of sugar, it should purchase the required quantity from the open market via tenders, or at a fixed price from mills as adopted by banks for valuation of sugar study for working capital loans.

Under the existing arrangement, a portion of the mills production is taken by the government at lower rates as levy sugar. It is then disbursed through ration shops.

The committee, which was set up by the ministry of food on March 14, 1997, in pursuance of a directive of the Allahabad high court, has also recommended the phasing out of the levy system, which it called the dual price system, over a period of two years.

The two-year period will allow such factories, set up in relatively high cost areas and who have the advantage of a high levy price under system of partial control, to take necessary steps to improve their efficiency in order to make these competent.

Barnala, however, told newspersons that the government would examine the committee recommendations within a month or so. Before that, the government would not commit itself in anyway, he added.

The committee suggested that the subsidy at present allowed in supply of sugar through the PDS can be distributed among beneficiaries by adding to the subsidy at present allowed on foodgrains.

An additional subsidy would be offset to some extent by higher realisation from excise duty on larger quantum of free-sale sugar. Excise duties are higher on free-sale sugar than on levy sugar. If there is still any deficiency it could be met by suitable increase in excise duty on sugar, the committee said.

The committee has recommended that supply of sugar through PDS may be discontinued when complete decontrol becomes effective. The committee noted that there were large-scale leakages of levy sugar into open market and a considerable subsidy was availed by the non-poor. It was of the view that even where PDS sugar reached the card holders, its financial benefit is very small.

The poor consumers in rural areas are in fact the net losers as they consume mainly gur (jaggery) whose price moves in tandem with price of free-sale sugar and would therefore be higher than they would be under a system of complete decontrol, the report said.

The committee recommended that statutory minimum price for sugar cane should be continued even under complete decontrol on sugar prices as a guarantee of a minimum price to the growers.

However, it suggested that statutory minimum price (SMP) should be based on cost of production of sugar cane and return to the growers from alternative crops and be delinked from price of sugar in the market. The committee also recommended that linking the of SMP to sugar recovery percentage should be done away with. However, premium could be allowed on varieties which have higher sugar content, it said.

The BB Mahajan Committee has also recommended a fixed share for the growers in the sale price of sugar, as followed in major sugar producing countries.

The cane price is suggested to be fixed separately for different zones on the basis of sugar prices and recovery percentage. All mills in a zone are required to pay the same price.

The committee recommended the setting up of a sugarcane pricing board under an economist of repute. Senior officers from department of sugar, agriculture, civil supplies and ministry of finance should assist the chairman, it said.
The report recommended that the mills should be statutorily required to pay minimum of 80 per cent of the advanced price determined by the board within 15 days of supply of sugarcane. The remaining amount is to be paid before the end of the sugar season. The difference between the advance price and the final price should paid by the mills within 15 days of the announcement of the final price. The delay in payment of arrears would attract 15 per cent interest and could be compounded with land revenue arrears.

The committee recommended continuation of licencing policy for sugar mills with some modifications. The mills should be free to expand their installed capacity. The economic viability of a sugar mill will be guarded in allowing new sugar mills in the vicinity. The mills will be obliged to crush all the sugar cane bonded by the growers from the reserved areas for supply to them.

The committee has favoured continuation of sugar under the open general licence category to encourage competition and to protect the consumers interests. It is of the view that the Indian sugar industry could be globally competitive if given a right policy environment.

It has suggested giving a regular export quota of one million tonne sugar to the mills to encourage them to better capacity utilisation and manufacturing of export quality sugar to build up a regular export market.

UNI