Report of the Rangarajan Committee on Deregulation of Sugar Sector in India

A government committee has favoured complete decontrol of the sugar industry, dispensing immediately with the levy sugar obligation and administrative control on non-levy sugar. These recommendations are in line with the industry’s demand for easing controls.The committee, led by C. Rangarajan, Chairman of the Prime Minister’s Economic Advisory Council, pitches for a stable trade policy and a moderate duty on imports and exports, but wants outright ban or quantitative restrictions done away with.

“Even though India contributes 17 per cent to the global sugar output, its share in exports is only four per cent,” the committee said in its report, which was submitted to Prime Minister Manmohan Singh here on Friday.

Export and import policy, it said, should not be guided by domestic availability. The committee suggested the removal of the concept of a minimum distance of 15 km between any two sugar mills, obligating a mill to buy cane from growers within the reservation area. Instead, mills must enter into contracts with farmers. This would help to phase out the cane reservation area and bonding.

It said the State Administered Price (SAP) of sugar cane set by the States should be done away with, in favour of the Fair and Remunerative Price (FRP) set by the Centre as the minimum. Mills must share 70 per cent of the value of sugar and each by-product, including bagasse, molasses and press-mud (ex-mill), as cane dues payable to farmers for supplies.

The payment to farmers will be made in two steps: the first, the minimum FRP set by the Centre; and the second, subsequent to the publication of half-yearly ex-mill prices.

“Rationalisation of sugar cane pricing and liberalisation of sugar trade need to be introduced over a two to three-year period, in a calibrated and phased manner. However, levy sugar obligation and administrative control on non-levy sugar need to be dispensed with immediately,” the report said. The committee said the system of levy sugar should be done away with. Under it, the mills are required to sell 10 per cent of their production to the government at below market price for the poor under the TPDS. Instead, the panel said, the States that wanted to provide sugar under the TPDS might procure from the open market through competitive bidding, and also fix the issue price.

It also asked the government to rationalise the current issue price for TPDS sugar, which has not been revised for many years. (Now, the Food Ministry has proposed to double the issue price to around Rs. 23 a kg).

“Markets in almost all sectors… are constantly matching anticipated demands with supply. There is no particular reason why the sugar market would not be able to do this,” the report said.

Disfavouring quantitative or movement restrictions on by-products, the committee said the prices of by-products should be market-determined with no earmarked end-use allocations.

The Indian Sugar Mills Association (ISMA) termed the recommendations “forward-looking.”