FE BUREAU
Friday, Apr 27, 2012
New Delhi: A panel, set up by Prime Minister Manmohan Singh to consider shedding the decades-old control over the sugar sector, will meet on May 3 to discuss the issue, food secretary B C Gupta said on Thursday.
“We are actively considering it (decontrolling the sector). The committee will talk to all stakeholders concerned and take a decision,” Gupta said.
In January, Singh had appointed an expert committee, headed by his Economic Advisory Council Chairman C Rangarajan, to look into the matter.
The move followed the sugar industry’s renewed call for freedom at least from the mandatory supply of the sweetener by the industry at below cost for state-run welfare programmes—also known as the levy obligation— and the monthly sale quota. These apart, the government also decides the minimum price the mills have to pay for sugarcane purchases from farmers and imposes periodical limits on stocks large buyers can hold to thwart hoarding.
The sector has been under the government control since 1940s.
Global rating agency Standard & Poor’s on Wednesday downgraded India’s outlook to negative and threatened a cut in ratings if the country didn’t trim a fiscal deficit and push through critical reforms needed to prop up a faltering economy. Although the agency didn’t suggest lifting control over the sugar sector, industry executives said reforms would bring in much-needed foreign investments to the R80,000 crore sector, which hasn’t attracted any FDI for years now.
Sandwitched between high cane prices—often used by state governments as a tool to woo voters in the farming community—and low sugar sales realisation, the cash-strapped sugar industry has renewed calls this year for lifting the government control over the sector. Surplus sugar stocks for a second straight year have kept domestic prices subdued for more than eight months now despite a 17% hike in cane prices in the largest producing state of Uttar Pradesh.
Although Gupta didn’t give any time frame for the actual lifting of the control, he said the panel initially thought of submitting its report in around six months.
Apart from Rangarajan and Gupta, the committee comprises agriculture secretary PK Basu, chief economic adviser to the finance ministry Kaushik Basu, former agriculture as well as food secretary T Nanda Kumar, chairman of the commission for agricultural costs and prices Ashok Gulati and Economic Advisory Council secretary KP Krishnan.
Share prices of key sugar companies have been hammered by up to 70% since the beginning of 2010-11, significantly underperforming the Sensex, as various controls and dwindling returns on sugar sales bled their balance sheets.
The levy obligation alone cost R2,500 crore to R3,000 crore a year to mills as they are mandated to sell 10% of their output to the government at around 60% of their cost of sugar production at current prices.
The government’s control over how much sugar mills will sell in the open market each month compounds their worries as a failure to complete sales within the month could result in a conversion of the unsold quantity into the levy quota.
Gupta also said the country will have adequate sugarcane production in the next marketing year starting October 1, which will keep sugar supplies steady and prevent any irrational rise in prices.
Wholesale prices of the S30 refined sugar variety in Mumbai are ruling around R3,000 to R3,300 a quintal.
Separately, Gupta said the country will ramp up storage capacity to accommodate a bumper grain harvest in the crop year through June.
Earlier this week, agriculture minister Sharad Pawar said the country would produce a record 252.56 million tonne of grains in 2011-12, putting pressure on storage facilities.
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