Rangarajan panel favours sugar decontrol

Last Updated: Fri, Oct 12, 2012 19:01 hrs

The Rangarajan committee on Friday presented a road map for phased decontrol of the highly regulated Rs 80,000-crore sugar industry by suggesting removal of the levy obligation, release mechanism and having a uniform, revenue-linked sugarcane price.

It also favoured a free import-export regime, with duty of up to 10 per cent against the practice of a blanket ban or quantitative restriction. The committee was set up in January this year, chaired by C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council.

Stocks of top sugar companies, which had rallied earlier on anticipation of a positive report, ended in the green on Friday, too. At the Bombay Stock Exchange, Balrampur Chini gained over two per cent to Rs 70.05, Dhampur Sugar gained 3.25 per cent to close at Rs 71.50 and Mawana Sugars gained 3.25 per cent to close at Rs 15.90.

“The report keeps in mind the interests of all stakeholders,” said Vivek Saraogi, managing director of Balrampur Chini. “A deregulated policy can encourage further investment in the sector. The report needs to be implemented in totality. A beginning should be made, even if the implementation is phased. The revenue sharing formula needs more detailing but the concept is right.”

Suggesting a revenue sharing mechanism, the report said the industry should pay 70 per cent of the value of sugar and the by-products it realises after processing every tonne of sugarcane to farmers. For instance, if a mill in Uttar Pradesh produces Rs 100 worth of sugar, molasses, bagasse and press-mud from a tonne of sugarcane, it would pass on Rs 70. If a similiar mill in a western or southern state produces Rs 120 worth of sugar and three by-products due to higher recovery, it will share 70 per cent of Rs 120.

Rangarajan said: “The actual payment of cane dues to farmers will happen in two stages; first upfront when the FRP (fair and remunerative price) is paid and the second after six months, when the ratio is calculated.”

This implies FRP will be a guaranteed price. When the value realised is calculated after six months, anything extra over FRP would be paid. He said states willing to adopt this system of paying the cane arrears should not declare a State Advised Price (SAP). At present, the Centre fixes FRP and states such as Uttar Pradesh have their own SAP, significantly higher.

The report suggested doing away with the levy obligation (imposed as a proportion of each mill’s output, at a government-set price, to feed the ration shop system), now 10 per cent. “The central government will continue to distribute the around Rs 3,000-crore annual subsidy incurred in selling sugar through ration shops but it will go to the states, which will also enable them to bring down the procurement cost,” Rangarajan said.

Abhinash Verma, director general of the Indian Sugar Mills Association, said, “The recommendations are forward looking and will give a boost to investment in the sector, both at the farm and factory level. Mills will be able to plan their cash flows and sugar stocks and the financial burden of supplying levy sugar will now be rightfully taken over by the government.”

Establishing the basis for an efficient sugar industry would require a multi-pronged approach, the report said. Rationalisation of cane pricing and liberalisation of the sugar trade need to be introduced over two to three years, in a calibrated manner. However, the levy sugar obligation and administrative control (release mechanism) need to be dispensed with immediately, the report said.

Vinay Kumar, managing director of the National Federation of Cooperative Sugar Factories, said, “The removal of levy obligation and release mechanism will help the industry improve its financial health and better manage sugar stocks.”

Co-operatives already follow the revenue-sharing model and pay more than 70 per cent of total realisation to farmers.”

More from Sify: