ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Sugar Industry : High Price of Controls

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In what has been described officially as a move towards the deregulation of the sugar industry, the government this week announced a reduction in the levy quota obligation of sugar mills from 30 to 15 per cent of their output, with the so-called free sale quota going up correspondingly from 70 to 85 per cent. Further, government control on the actual release of free sale sugar in the market has been loosened a little: the quantity of sugar mills are allowed to sell in the market will be announced on a six-monthly basis in advance instead of every three months as at present. It has also been decided to restrict the supply of sugar through the public distribution system to households below the poverty line, except in the north-east and in hilly regions. This will reduce the quantity of sugar required to meet the government's PDS obligation – to match the cut in the levy quota; it will also enlarge the market for free sale sugar. These changes, however, are to come into effect only from April 1, by when peak crushing in the 2000-2001 sugar season will be over. This concern for softening the impact of the changes on the sugar industry speaks for how the government and the industry alike have got locked into the system of control and regulation – and also how tortuous the path to deregulation of the industry is going to be.

The logic of deregulation is in itself unassailable, of course. In fact it is possible to see that the hesitant changes in sugar policy now announced are no more than a reflection of the compulsions of ground-level realities. Under the weight of these compulsions, the elaborate structure of controls governing the industry had developed significant leakages. It is no secret thus that a part of levy sugar, meant for distribution through the PDS, has been finding its way into the open market. Similarly, many sugar mills have been managing to circumvent the control on release of free sale sugar and have been offloading quantities in excess of their quotas in the market. Both misdemeanours make perfect sense in the context of the state of the industry. With the government anxious to cut back on the quantity of sugar sold through the PDS in an effort to contain the burden of the budgetary subsidy and so progressively restricting the category of households (from all those with ration cards to non-income tax payers to those below the poverty line) entitled to draw sugar through the PDS, the levy quota meant for sale through the PDS (whether at the earlier level of 30 per cent of output or even at the revised 15 per cent) is much more than the actual PDS offtake. A substantial part of the sugar acquired through the levy has thus been accumulating as stocks the cost of which as well the risk of deterioration have to be borne by the government. So some of this stock leaking out to be sold in the open market could even be viewed as a blessing in disguise. Not enough of this is happening, however, since it is estimated that by the beginning of April when the new sugar policy takes effect, the government would be burdened with stocks of levy sugar of close to 20 lakh tonnes.

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