Rangarajan panel proposes removal of curbs on sugar industry

In a sweetener for the sugar industry, the C. Rangarajan committee has recommended complete decontrol of sugar, saying mills should be allowed to sell their output in the open market. In its report submitted to the Prime Minister’s Office today, the panel said the government should allow only a modest level of import and export tariffs on sugar.

"Sugar is like any other commodity," Mr Rangarajan told reporters. "Why should there be so many restrictions?"

Most state governments have welcomed the solution. Analysts believe the measures will help end cycles of overproduction and shortage, and stabilise exports and imports. 

Here are 10 takeaways from the panel’s recommendations:

1. Sugar companies should not be required to keep aside 10 per cent of their output for the government. They should be allowed to sell their entire produce in the open market.
2. State governments should buy sugar from the open market and not below-cost rates, for supply to ration shops, as is the case now.
3. Another restriction the panel sought to end was the practice of setting the prices mills must pay to farmers, which leads to some state governments forcing mills to pay farmers a premium over that rate, in order to please a major group of voters. Many experts say higher minimum cane prices set by the government raise cultivation, and therefore sugar output, reducing retail prices of the sweetener. As sugar prices fall, mills delay payments to farmers.To protect their income, farmers in turn shift to other crops in future years, leading to scarcity -- and high prices. That cycle forces India to flip between exports and imports.
4. Sugar mills should be free to procure sugarcane from anywhere without being limited to buying from cane farmers in their vicinity.
5. No more quantitative controls on export and import of sugar, and no more outright bans on sugar exports. Companies should be free to sell in the export markets and also be allowed to import and sell in the open market and take advantage of price differential. "We should be able to export if global prices are attractive or import when it makes sense," Mr Rangarajan said, arguing against abrupt bans on exports and imports.”
6. By-products of the industry such as ethanol (used in the automotive fuel as well as biotechnology industries) should be sold at market-determined prices. Should the government accept the panel’s recommendations, ethanol prices may be hiked. This will benefit sugar mills engaged in the production of ethanol.
7. Shares in sugar companies witnessed gains after the panel’s recommendations. EID Parry, India's biggest sugar firm by market cap, traded flat, but Shree Renuka shares advanced 0.5 per cent. Shares in KM Sugar Mills surged over 13 per cent. Balrampur Chini gained over 3 per cent while Bajaj Hindusthan traded 2 per cent higher.
8. Currently, mills supply levy sugar at 60 per cent of the cost of production, resulting in an annual loss of about Rs. 2,500-3,000 crore for the industry.
9. India has been exporting sugar for the past two years after a severe drought in 2009 forced it to import large quantities of the sweetener, driving global prices to 30-year highs.
10. Sugar production in India, the world's second-largest producer but also the largest consumer, is estimated to touch 25.2 million tonnes this year against the annual demand of 22 million tonnes.

    The recommendations to free up the sugar sector follow close on several wider reform measures, such as raising the price of subsidised fuel to cut the budget deficit and opening up the retail sector to foreign supermarkets.

With inputs from Reuters