Rangarajan Committee and Partial Decontrol of Sugar

There has been a long pending demand for complete decontrol of the sugar industry. But successive central governments have hesitated to decontrol sugar. The prime reasons can be summarized as below:

• Sugar Industry is an agro based industry and in India the output of agriculture is uncertain. If there is a surplus in the sugar cane crop, control is necessary to prevent the price collapse which may hurt the industry.
• If there is a short supply of sugarcane, protection of consumer’s interest becomes essential for the government.

Rangrajan Committee

The Rangarajan Committee in November 2012 had made some salient recommendations on the basis of which, the previous UPA government took decision and declared some reforms. Some salient recommendations are shown in the below graphics:

In April 2013, the government announced partial decontrol of sugar. What was done exactly is seen in the below graphics:

The above graphics makes it clear that the partial decontrol of sugar announced in April 2013 has mainly four elements.

Abolition of the levy system

The government has abolished the 10% levy sugar for two years. Now, the levy sugar for the PDS will be procured by State governments from the open market at prevailing market prices. This will put additional subsidy burden to the government. However, the government did not increase the excise duty to fund its additional subsidy burden.

Dismantling of Monthly Release Mechanism

The government abolished the regulated release mechanism for non-levy sugar (or free sale sugar).  Sugar factories are now free to sell any quantity to the market, depending upon the open market prices and their cash flow needs.

Export and Import via Tariffs only

The Rangarajan committee had recommended abolition of the quantitative controls on export and import of sugar, and no more outright bans on sugar exports. The committee had recommended that the 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. The government has abolished the import and export quotas and now controls that via import duty and tariff only.

Relaxation in Jute bags use for packing requirements

To support the Jute industry, the government has given mandatory packaging in jute bags a minimum of 40% of the production of sugar and 90% of the production of foodgrains. The was 100% earlier and was relaxed not in April 2013 but in November 2012 itself.