The decontrol of the Sugar sector has taken a new turn with the PM Mr. Manmohan Singh intervening to ensure speed to that process. The sector has remained under strict state supervision despite ongoing liberal reforms which started two ago. The Prime Minister has asked the Ministry of Food to start acting promptly on the proposal to speed up the unwinding of controls.
A Food Ministry official commented, that the PMO has in fact written a letter to the Ministry to put the proposals before the Cabinet. Earlier, The Ministry of Finance had raised concerns that the move of liberalising sugar, would raise subsidy burden, while also ending the below-cost supplies from sugar mills to the Indian public distribution system (PDS). The proposal of increasing the Excise duty on Sugar would also result in inflation. However, the PMO insisted in its letter that the proposals must be put before the Cabinet.
Food Minister KV Thomas has told that the proposals are likely to be placed before the Cabinet in a week™s time. They are ready with the proposals and there is a possibility that the matter will be discussed either in this week’s Cabinet meeting or next. Mr. Thomas had said earlier that the proposal of decontrol has been supported and backed by the Planning Comission as well as the Ministry of Agriculture. He also stated that the ministry will take the Finance Ministry™s consensus too, on the proposed decontrol of sugar. The Finance Ministry has in fact raised concerns on the same, stating that such a decontrol could lead to inflation. The proposals also include raising of excise duty to cover the component of subsidy.
Current scenario and salient proposals:
- The current excise duty is Rs 95 a quintal including a cess of Rs24
- The ministry of food, in a move to offset the subsidy implication, has proposed that the excise duty be increased by Rs 150 a quintal.
- Sugar mills currently, sell 10% of their total production at Rs19.04 / kg
- The wholesale market price for the PDS currently is Rs31 / kg
- The government machinery (ration shops), then sells the sugar at Rs13.50 / kg to approximately 6.52 crore poor families
- The total subsidy bill comes to approximately Rs2,500 crore per year
- Current estimated food subsidies have crossed Rs. 85000 crore
- The food subsidy which was earlier borne between the Sugar manufacturer and the government, will now be borne by the Government entirely