Budget may not remove curbs on sugar industry

Even as the Economic Survey has pitched for decontrol of the sugar sector, there are indications that the decision may not be part of the Union Budget to be presented by Finance Minister P. Chidambaram on Thursday.

“Announcing the removal of levy and imposing an additional excise duty to enable the Government to finance the sugar purchases for the public distribution system as part of the Budget may not be politically expedient. It will give the Opposition just the right handle to dub the Budget as anti-people,” sources in the know said.

According to them, the decision to decontrol may be taken up separately by the Union Cabinet after the Budget, possibly next week.

The Finance Ministry has reportedly expressed concern over the potential rise in sugar prices if the release mechanism were to be scrapped and an additional excise duty is imposed on the sweetener.

Food Minister K.V. Thomas is expected to address the Finance Ministry’s concerns on the issue and consultations were likely to begin after the Budget.

The Survey pointed out that the Indian sugar sector suffered from “policy inconsistency and unpredictability”. The sugar industry in India is over-regulated and prone to cyclicality due to price interventions. Stating that a greater play of market forces would provide better prices and serve the interests of all stakeholders, the Survey suggested the “Government should come into picture only in situations where absolutely necessary”.

The export bans and controls could be replaced with small variable external tariffs to stabilise prices. “A stable, predictable and consistent policy reforms have to be brought about in a fiscally neutral manner and issues considered for implementation in a phased manner,” it said.

The Rangarajan Committee had recommended removal of levy sugar system and scrap the regulated release mechanism for the open market sale. It had also suggested phasing out cane reservation area and dispensing with minimum distance criteria between mills, stable trade policy, no quantitative or movement restrictions on by-products such as molasses and ethanol, besides dispensing with compulsory jute packing.