(Adds market reaction, prices in paragraphs 8-11)
By Mayank Bhardwaj
NEW DELHI, April 4 (Reuters) - India 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
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, Food Minister
K.V. Thomas told journalists on Thursday after the cabinet
agreed the changes.
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.
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," Thomas said.
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.
Until now, the government has decided the quantity of sugar
mills can sell in the open market and has bought 10 percent of
their output at a big discount. Thomas said the government could
review purchasing policy after two years.
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,
"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.
May raw sugar on ICE Futures U.S. settled up 0.17
cent, or 0.97 percent, at 17.67 cents a lb on Thursday,
recovering from their lowest levels since July 2010 hit a day
earlier. In London, May white sugar on Liffe slid 50
cents, or 0.10 percent, to $504.4 a tonne.
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 deficit
and opening up the retail sector to foreign supermarkets.
Some government officials 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 inflation, which is above 11 percent.
As a result of the reforms, the government's bill for
supplying sugar at cheaper rates to the poor will rise to 53
billion rupees ($966.4 million) from 26 billion now, Thomas
But he added that there would not be any extra burden
because the food and farm ministries have proposed raising the
excise duty, or production tax, on sugar by 1.5 rupees per kg.
The finance ministry will decide on any changes to the
production tax, Thomas said on Thursday.
India, ranking second only to Brazil, is expected to produce
at least 25 million tonnes of sugar in the year through
September, Thomas has said, while annual consumption is about 22
India has turned into a net importer of sugar for the first
time in two years, despite surplus stocks at home, as global
prices have slumped. Millers have demanded an increase in the
import tax to curb cheaper imports.
($1 = 54.8450 Indian rupees)
(Additional reporting by Chris Prentice in New York and David
Brough in London; Editing by Jo Winterbottom, Jane Baird and Jim