India is the largest consumer and second largest producer of sugar after Brazil. Sugar and Sugarcane are notified as essential commodities under the Essential Commodities Act 1955. The Indian sugar sector suffers from policy inconsistency and unpredictability. The Sugar industry in India is over-regulated and prone to cyclicality due to price interventions. Deregulation of the sugar industry has been widely debated for a long time. From a purely economic point of view, greater play of market forces would provide better prices and serve the interests of all stakeholders. Export bans and controls could be replaced with small variable external tariffs to stabilize prices.
The principal aspects regulated in the sugar sector are as under:
(i) Cane reservation area and bonding: Every designated mill is obligated to purchase from cane farmers within the cane reservation area, and conversely, farmers are bound to sell to the mill.
(ii) Minimum distance criterion: The Central Government has prescribed a minimum distance of 15 km between any two sugar mills.
(iii) Price of sugarcane: While on the one hand, the Centre Government fixes FRP as the minimum price, which is also used for arriving at the price of levy sugar. On the other, many States have intervened in sugarcane pricing with State Advised Price (SAP) to strengthen the farmer interests. SAP has typically been higher than FRP.
(iv) Levy sugar obligation: Every sugar mill mandatorily surrenders 10% of its production to the Central Government at a pre-determined price, which is, at present, Rs. 1,904.82 per quintal. This enables Central Government to get access to low cost sugar stocks for distribution through PDS.
(v) Regulated release of free-sale (non-levy) sugar: The release of non-levy sugar into the market is regulated by the Central Government through a controlled release mechanism.
(vii) Regulations relating to by-products
(viii) Jute Packaging Materials Act mandates that sugar be packed only in jute bags.
A report on ‘Regulation of the Sugar Sector in India: The way forward‘ has been submitted by the Committee under the chairmanship of Dr C. Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister. The ways forward suggested include: rangarajan
Phasing out cane reservation area
Dispensing with minimum distance criteria: The minimum distance criterion inhibits entry and further investment, and adversely impacts competition for purchase of sugarcane as well as for improving mill efficiency.
Dispensing with the levy sugar system: States that want to provide sugar under the PDS may procure it from the market according to their requirement, fix the issue price and subsidize from their own budgets.
Dispensing with the regulated release mechanism (of non-levy) sugar
Stable trade policy: No quantitative or movement restrictions on byproducts like molasses and ethanol and dispensing with compulsory jute packing
The committee has suggested Rationalization of sugarcane pricing and liberalization 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.
ADMIN- LAV
The principal aspects regulated in the sugar sector are as under:
(i) Cane reservation area and bonding: Every designated mill is obligated to purchase from cane farmers within the cane reservation area, and conversely, farmers are bound to sell to the mill.
(ii) Minimum distance criterion: The Central Government has prescribed a minimum distance of 15 km between any two sugar mills.
(iii) Price of sugarcane: While on the one hand, the Centre Government fixes FRP as the minimum price, which is also used for arriving at the price of levy sugar. On the other, many States have intervened in sugarcane pricing with State Advised Price (SAP) to strengthen the farmer interests. SAP has typically been higher than FRP.
(iv) Levy sugar obligation: Every sugar mill mandatorily surrenders 10% of its production to the Central Government at a pre-determined price, which is, at present, Rs. 1,904.82 per quintal. This enables Central Government to get access to low cost sugar stocks for distribution through PDS.
(v) Regulated release of free-sale (non-levy) sugar: The release of non-levy sugar into the market is regulated by the Central Government through a controlled release mechanism.
(vii) Regulations relating to by-products
(viii) Jute Packaging Materials Act mandates that sugar be packed only in jute bags.
A report on ‘Regulation of the Sugar Sector in India: The way forward‘ has been submitted by the Committee under the chairmanship of Dr C. Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister. The ways forward suggested include: rangarajan
Phasing out cane reservation area
Dispensing with minimum distance criteria: The minimum distance criterion inhibits entry and further investment, and adversely impacts competition for purchase of sugarcane as well as for improving mill efficiency.
Dispensing with the levy sugar system: States that want to provide sugar under the PDS may procure it from the market according to their requirement, fix the issue price and subsidize from their own budgets.
Dispensing with the regulated release mechanism (of non-levy) sugar
Stable trade policy: No quantitative or movement restrictions on byproducts like molasses and ethanol and dispensing with compulsory jute packing
The committee has suggested Rationalization of sugarcane pricing and liberalization 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.
ADMIN- LAV
Excellent Post, It’s really helpful article
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