People's Democracy

Bitter Policy on Sugar

Brinda Karat

THE new sugar policy of the UPA government favours the interests of the sugar industry with little concern for consumers or for the approximately 45 million sugarcane growing kisans in different states. It is a policy which will eliminate sugar as an entitlement in the public distribution system and lead to higher prices of sugar. The political clout of sugar mill owners is once more on display as the government has moved with record speed to accept the recommendations of the Rangarajan Committee without any reference to parliament.  It is no secret that sugar mill owners have strong political connections. In Maharashtra which is the second largest sugar producing state after Uttar Pradesh, in the thirty member cabinet, at least thirteen members own sugar mills or hold shares in them. In other states also, including UP they wield immense political power. They have now succeeded in ensuring the deregulation of the sector. This is significant also because of the simultaneous development of the use of sugarcane to produce bio fuels like ethanol. In December 2007, the government amended the Sugarcane Control Regulation to permit ethanol production. Companies like Reliance and HPL have bought sugar mills for ethanol production. A deregulated regime is a necessary requirement for such diversion of sugarcane for bio fuel on a larger scale.

INCREMENTAL

DILUTION

The change in policy has been in the making since the advent of liberalisation policies. Successive governments at the centre diluted the regulatory mechanisms. Take the example of levy sugar.  To ensure sugar supplies to the public distribution system, India has had a system which made it mandatory for all sugar mills to provide a certain percentage of their production at a fixed price to the government. Since this price was based on the cost of production and not the market price, sugar mill owners have been demanding that it be scrapped. In 2000, the BJP led NDA government reduced the percentage of levy sugar from 30 per cent to 20 per cent of total production. This was further reduced by the UPA government to just ten per cent. Simultaneously, the allotment of sugar for ration cardholders in the PDS was also reduced. From a universal entitlement of sugar to all ration card holders, the quota has been repeatedly cut. Now only BPL card holders are eligible for around 1.5 to 2 kilos of sugar per family at the subsidised price of 13 rupees 50 paise. Around 27 lakh tonnes of levy sugar is presently supplied through the PDS.

MANIPULATING TRADE

POLICY TO SUIT THE INDUSTRY

Yet even as the deregulation chorus grew louder, the same industry demanded full protection and subsidies in trade policies. The government obliged by subsidising exports in years of surplus production as in 2007-2008 so as to prevent any fall in prices of sugar which would adversely effect the industry. In 2009, the government subsidised imports of sugar through lowering the customs duty to benefit the trade at a time when there were shortages of sugar in the country without any guarantee that such concessions would translate into lower prices to benefit consumers. In 2009 sugar was selling at 100 rupees a kilo in many cities. As a result of these policies, while consumers and farmers were suffering due to high prices of sugar and huge unpaid arrears to farmers, big sugar companies made a killing. The stock price of some of the companies increased manifold. For example the stock price of Sri Renuka Sugars went up between January 2009 and September 2009 by 178 per cent; Balaji Hindustan went up by 149 per cent; Balaram Chini by 130 per cent and Nifty Mid-cap 50 by 69 per cent. This reality is in contrast to the self- serving propaganda preceding the setting up of the Rangarajan Committee that the industry was in crisis.

NO HELP FOR

FARMERS

The Rangarajan Committe was set up with a mandate to suggest “reforms" for the industry. While it has pandered to the demands of the industry there is nothing in the recommendations to make it mandatory for the industry to pay the huge arrears it owes to the sugarcane growing kisans. At present the arrears are around 12,000 crore rupees, half of which is the money owed to the kisans in Uttar Pradesh alone. Suicides of sugar cane growing farmers were of little concern to this committee. The only recommendation made for kisans was how to prevent state governments from declaring a minimum price for sugarcane (State Advised Price) over and above the price declared by the central government (Fair and Remunerative Price). Given the political implications of eliminating SAPs, the central government has put this recommendation on hold.

The other recommendation also on hold is that of a transparent mechanism for trade policies. In fact the government hesitation to accept this recommendation is precisely because the present arbitrary decisions on export and import are designed to protect the interests of industry and trade. For example, at present global prices of sugar are lower than Indian prices. The industry is now demanding that the government should raise the custom duties on imports so as to protect the higher prices in India. This is not to say that governments should not use tariff policies to protect India's interests when required, but just to point out the utter hypocrisy of the free market proponents.

DEREGULATION

The central government has accepted both the major recommendations of the Rangarajan Committee which favour the industry. The levy of ten per cent  has been completely abolished. The government which screams murder every time a subsidy is suggested, has willingly accepted a 3000 crore rupee burden which is what the abolition of the levy will cost. Secondly the Release Regulatory Mechanism through which the government could control the release of sugar by the mills to the market has also been abolished. This mechanism was designed to prevent hoarding and speculation through a quota system of release of sugar in the free market. Sugar producers can now sell however much they want, when they want, where they want, depending on their own assessments of market prices. This will also mean a free market in the sale of by-products like bagasse or molasses to the liquor industry which is sometimes even more profitable than the sale of sugar.

IMPACT ON

CONSUMERS

While accepting the two recommendations, the government announced that it will continue the sugar subsidy for the PDS.  The present cost of sugar in the PDS is Rs 13.50 a kg. The government has pegged its subsidy to an assumed market price of Rs 32 per kg. State governments are to buy sugar  from the open market within this price. The central government will reimburse the state government for the difference which is Rs 18.50 per kg. The 32 rupee cap will be valid for two years.

The price of one kilo of sugar is already above 32 rupees and in most markets being sold for 34 to 35 rupees. They are bound to rise even further. Although there is no pressure on supplies since sugar production this season is expected to be around 24-26  million tonnes, about 2 to 4 million tonnes  above domestic demand, deregulation will enable  manipulation, speculation and hoarding, pushing up prices. Already within a month of the new policy, futures in sugar are seeing an upward trend which is bound to have an impact in pushing up spot prices. There is nothing in government policy to control speculation in the futures market.

Who will pay the difference between the central subsidy and the actual market price? While protecting the interests of the sugar industry, the central government is arbitrarily shifting a part of the subsidy to the state governments. Given the resource crunch most state governments face, they will find it difficult to meet the escalating costs. What it means is that ultimately sugar as an entitlement in the PDS will be eliminated. Thus the consumer is bound to suffer both on account of the cuts in the PDS as well as the burden of increased market prices for sugar.