By Ajay Modi
The Rangarajan Committee, set up earlier this year by the prime minsiter’s office (PMO), has recommended total decontrol of the sugar industry by doing away with the levy sugar obligation, release mechanism and freeing of export-import. While recommending the Centre’s Fair and Remunerative price (FRP) as the base price for sugarcane, the panel has suggested a profit-sharing mechanism so that farmers, too, benefit from higher sugar prices.
A brief of the report was circulated to the food ministry, last week. The committee has also recommended doing away of the state’s power to reserve sugarcane area for mills, implying farmers can sell to any sugar mill they wish, said a person familiar with the development. “It has also suggested the current minimum distance of 15km between two mills be removed. The most important suggestion is on sugarcane pricing that can in effect mean an end to states’ power to set a different and higher price,” he said.
According to the report, mills will initially pay the FRP to farmers during the season. Thereafter, another price will be calculated every quarter taking 70 per cent of a mill’s sugar price realisation and five per cent of the realisation from by products. If this price exceeds the FRP, the difference will be paid to farmers. If this price is below FRP, then farmer will get only FRP. The sugarcane area reservation and sugarcane pricing has been a big political tool for states like Uttar Pradesh. UP Chief Minister Akhilesh Yadav had vehemently opposed decontrol in this meeting with Rangarajan last month.
The committee has said state governments should buy sugar for PDS from open market and government should pass on the cess of Rs 24 it collects on every quintal of sugar to state governments to fund market purchase. Currently, the cess goes to the Sugar Development Fund. This fund is used to grant low interest loans to industry for sugarcane development, plant modernisation, ethanol and power projects. Rangarajan has suggested doing away with this fund.
Sugar is one of the most controlled industries in India. Attempts to decontrol it were made in 1971-72 and in 1978-79, only to be rolled back. The government has over the years eased earlier controls in other major industries like steel and cement. Mills can sell in the open market only according to the release orders issued each month by the directorate of sugar in the Union government.
It gives mill-wise sales quotas. Mills cannot sell above this and a penalty is levied if they fail to sell within the stipulated month. Also, the government directs how much mills are to sell (presently, 10 per cent) of their output to it, at a price it fixes, for distribution through the ration shop system.
Exports are subject to government order, too. For that matter, cane procurement by mills is also decided by the government in addition to the catchment area and price.
The committee headed by C Rangarajan, chairman of Prime Minister’s Economic Advisory Council (EAC) included former Chief Economic Advisor, Kaushik Basu, CACP Chairman Ashok Gulati, the Secretaries of Agriculture, Food and Public Distribution, Secretary EAC, K P Krishnan and the former secretary of Food and Public Distribution Nand Kumar who is presently a member of National Disaster Management Authority as members.
This is not the first committee set up by the government to study reforms in the sugar industry. Recommendations of the Tuteja Committee and Thorat Committee are yet to see light of the day.
(With inputs from Sanjeeb Mukherjee)