Prime Minister had set up a committee under the
chairmanship of Dr. C. Rangarajan, Chairman, Economic Advisory Council to the
Prime Minister to look into all the issues relating to the deregulation of the
sugar sector. The committee has completed its task, after several rounds of
deliberations, consultations with stakeholders, and discussion with Chief
Ministers of major sugar-producing states. The report was submitted to the
Prime Minster on 10-10-2012.
2. A major recommendation
of the committee relates to revising the existing arrangement for the price to
be paid to sugarcane farmers, which suffers from problems of accumulation of
arrears of cane dues in years of high price and low price for farmers in other years.
The existing arrangement comprises a Fair and Remunerative Price (FRP)
announced each year by the Centre, under the Sugarcane Control Order and on the
advice of CACP, as the minimum price of sugarcane. However, many states in
north India also announce a State Advised Price (SAP) under state legislation.
Generally, the SAP is substantially higher than the FRP, and wherever SAP is
declared, it is the ruling price. Instead of the present arrangement, the
committee has proposed that at the time of cane supply, farmers be paid FRP as
the minimum price, as at present. Further, subsequently, on a half-yearly
basis, the state government concerned would announce the ex-mill prices of sugar and its by-products, and farmers would be
entitled to a 70% share in the value of the sugar and by-products produced from
the quantity of cane supplied by each farmer. Based on the share so computed,
additional payment, net of FRP already paid, would then be made to the farmer.
Since the sugar value estimate includes return on capital employed, this
implies that farmers would also get a share of the profits. With such a system in operation, states
should not declare an SAP.
3. The committee has also
recommended dismantling of the levy obligation for sourcing PDS sugar at a price
below the market price. States should be allowed henceforth to fix the issue
price of PDS sugar, while the existing subsidy to states for PDS sugar
transport and the difference between the levy price and the issue price would
continue at the existing level, augmented by the current level of implicit
subsidy on account of the difference between the levy price and the open market
price. This will free the industry from the burden of a government welfare
programme, and indirectly benefit both the farmer and the general consumer
since the industry passes on the cost of levy mechanism to farmers and
consumers.
4. The committee has
recommended dispensing with the present mechanism of regulated release of
non-levy sugar, as it imposes additional costs on factories on account of
inventory accumulation.
5. The committee has
recommended that cane area reservation ultimately be phased out and contracting
between farmers and mills allowed for enabling theemergence of a competitive
market for assured supply of cane, in the interest of farmers and economic
efficiency. However, in case some states want to continue it for the time
being, they should do so while ensuring that area reservation is done for at
least three to five years at a time, so that industry has a stake in its
development. Further, wherever and whenever a state discontinues area
reservation, the Centre should remove the stipulation of a minimum distance
between two mills.
6. On external trade, the
committee has favoured a stable policy regime with modest tariff levels of 5%
to 10% ordinarily, and dispensing with outright bans and quantitative
restrictions. The committee has also recommended dispensing with the mandatory
requirement of jute packaging. In respect of molasses, the committee favours
free movement and dismantling of end-use based allocation quotas that are in
vogue in several states, to enable creation of a national market and better
prices for this valuable by-product as well as improved efficiency in its use.
7. Members on the committee
were Shri T. Nandakumar, Member, NDMA, Dr Ashok Gulati, Chairman, Commission on
Agricultural Costs & Prices, Dr Raghuram Rajan, Chief Economic Advisor,
Shri Sudhir Kumar, Secretary, Food & Public Distribution, Shri Ashish
Bahuguna, Secretary, Department of Agriculture & Cooperation, and Dr K. P.
Krishnan, Convener, as the then Secretary, Economic Advisory Council.
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