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.
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.
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.
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.
The committee has recommended that cane area reservation ultimately be phased out and contracting between farmers and mills allowed for enabling the emergence 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.
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.