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You are here: Latest News (https://www.firstpost.com/) /  Economy News (https://www.firstpost.com/category/economy)

Govt decontrols sugar for 2 years : All

you need to know
Economy (/category/economy) FP Staff Comment 0 Share 0
(https://www.firstpost.com/author/fp-staff)
Tweet (https://twitter.com/share?text=Govt
Dec 20, 2014 17:46:10 IST
decontrols sugar for 2 years : All you need to know
)

The government has taken steps to remove curbs on domestic sugar supplies
after months of debate as the world's second-biggest producer hopes to iron
out sharp swings in output that have triggered volatility in global prices.

What does decontrol mean?

Decontrol means no government control. India, the biggest sugar consumer,

will no longer force mills to sell sugar to the government at a discount and will
not limit the amount they can sell in the open market.

The restrictions were in place partly to keep a lid on local prices and maintain
cheap supplies for India's half a billion poor, and partly as a legacy of a
planned economy in which the state regulated most sectors.

No levy obligation on sugar mills for 2 years.

Levy sugar is the amount of sugar set aside from the total production for
Public Distribution System (PDS). In levy sugar system, millers were required
to contribute 10 percent of their output to the Centre for running ration shops
at cheaper rate. This costed the industry Rs 3,000 crore a year, an amount
sugar industry will now be able to save.
 Rise in retail prices
unlikely

The government will buy

sugar from the open
market at market rates
and subsidise it to PDS.
The government will pay
. The Centre will continue to provide sugar to the poor under the PDS
at the current issue price of Rs. 13.50 per kg.Reuters the difference between
ex-mill and PDS price. Cabinet xed the price of levy sugar at Rs 13.50 a kg in
2002 and it was never changed since then.

•The government will bear Rs 5300 crore PDS sugar subsidy.

•No hike in excise duty on sugar. Currently it is Rs 95 per quintal

• Ex-mill sugar price will be capped at Rs 32 per kg for PDS

The government maintained that the decision will not lead to any rise in retail
prices of sugar. However, it would double the government's subsidy burden to
Rs 5,300 crore annually from about Rs 2,600 crore. States would have the
exibility to decide on the minimum distance norms for mills and they will be
free to buy from open market for the PDS

Although total deregulation is still far, Thursday's decision marks the

beginning of the unshackling of the industry, which bears the last vestiges of
stringent and complex government controls.

Sugar decontrol will curb output swings

Analysts have said the tight regulations have caused sharp swings in output,
which have led to large-scale imports and exports every few years. India's
frequent imports and exports can trigger volatility in global prices.

"By arriving at the decision in the cabinet, we've kept the interest of all
stakeholders - farmers, consumers and the industry - in mind," KV Thomas,
the food minister, said.

Manufacturers can now sell as much as they want and depend on their
marketing expertise to push sales.

The other important decision taken is the abolition of the regulated release
mechanism. This has been delayed for long and will reduce inventories.
There was a lot of pressure on this matter, but the government has gone ahead
and bitten the bullet on this crucial decision.
Thomas and Farm Minister Sharad Pawar, who previously sparred over trade
policies, have both supported freeing up the sector after a report in October
2012 recommended lifting curbs.

Deregulation of the world's biggest sugar market is likely to end a boom-and-

bust cycle in plantings, although in the long term farmers may seek to
increase revenue by increasing output, analysts said.

"You might see lower volatility (in Indian production cycles) if the Indian
sugar industry is tied more to international prices," said Keith Flury, a senior
soft commodities analyst with Rabobank in London.

In New York, prices are languishing near three-year lows below 18 cents per
lb, close to break-even for higher-cost producers, as the global market braces
for a hefty global surplus amid record production and stagnant demand.

The sugar sector reforms follow changes in other sectors such as steel and
cement as well as other measures such as raising the price of subsidised fuels
to cut the budget de cit and opening up the retail sector to foreign
supermarkets. Some government of cials had argued that costs of food
subsidies would go up if the sector was liberalised, because the state would
have to buy sugar on the open market, further fanning food in ation, which is
above 11 percent.

Why it was important to decontrol?

• Controlling sugar industry, farmer is politically bene cial in vote bank

politics especially for UP, Maharashtra government.

• Sugar companies say government shackles mean thin pro ts, new industry
doesn't come up and in turn sugar is imported.

• Also decontrol means farmers will get timely and better remuneration from
sugar companies.

With inputs from Agencies

Updated Date: Dec 20, 2014 17:46 PM

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