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Rangarajan Committee recommendation for Sugar Industry in India, 2012

recommendation for Sugar Industry in India,

The recommendations made in this report will bring about greater certainty, stability and rationality into the system and has the potential to propel this sector to a greater height. It will incentivise the sugar industry to put up integrated plants producing not only sugar, but also ethanol from molasses and power from bagasse. These can become energy hubs in rural areas, and given that the demand for energy (fuel and power) will keep increasing with rising incomes and population, sugar industry can latch on to this rising demand, diversify and avoid the usual cyclicality in its production and prices, and bring greater prosperity to rural areas. A vibrant and multi-pronged sugar sector can be a harbinger of prosperity and growth for rural India, provided we get the policy prescriptions right.
 
The Government of India constituted committee on regulation of sugar industries in India to comprehensively look into all the issues related to regulation of the sugar sector, and suggest ways and means to change those regulations in a manner that better promotes efficiency and investments, and sets this sector on a higher growth trajectory, increasing employment in rural areas and enhancing incomes of all those involved in this sector. Sugar industry is one of the few industries that have contributed to the development of the rural economy through utilization of a rural resource. Not only have the sugar demand of the country been met but the ever increasing energy demands are also being met by the surplus energy produced by the industry. However, the industry has not been able to achieve the growth trajectory that it could have on account of various regulations that span the value chain, ranging from sugarcane production to actual distribution of sugar in the domestic market and export of sugar.
 
During the course of its groundwork in firming up recommendations on various issues, the committee held wide-ranging stakeholder consultations with various associations/individuals at the national and state levels. The committee also met Chief Ministers of some of the important sugarcane and sugar-producing States, viz., Karnataka, Maharashtra and Uttar Pradesh. Details of the committee's meetings, stakeholder consultations and meetings with the Chief Ministers are given in Annex-II. In addition, informal discussions were held with other stakeholders in the sector.
 
Sugar and sugarcane are notified as essential commodities under the Essential Commodities Act, 1955. India is the largest consumer of sugar and the second largest producer of sugar in the world. However, it does not have a reasonable degree of predictability in its production and trade policy with respect to sugar.
 
The principal aspects regulated in the sugar sector are as under:
(i) Cane reservation area and bonding— Every designated mill is obligated to purchase from cane farmers within the cane reservation area, and conversely, farmers are bound to sell to the mill.
 
(ii) Minimum distance criterion—The Central Government, under the Sugarcane Control Order, has prescribed a minimum distance of 15 km between any two sugar mills.
 
(iii) Price of sugarcane— While on the one hand, the Centre Government fixes FRP as the minimum price, which is also used for arriving at the price of levy sugar. On the other, many States have intervened in sugarcane pricing with State Advised Price (SAP) to strengthen the farmer interests. SAP has typically been higher than FRP.
 
(iv) Levy sugar obligation— Every sugar mill mandatorily surrenders 10% of its production to the Central Government at a pre-determined price, which is, at present, Rs. 1,904.82 per quintal. This enables Central Government to get access to low cost sugar stocks for distribution through PDS.
(v) Regulated release of free-sale (non-levy) sugar— The release of non-levy sugar into the market is regulated by the Central Government through a controlled release mechanism.
 
(vi) Trade policy for sugar— Depending on mill-wise monthly production and stocks, local production levels and world market conditions, quantitative controls on both exports and imports are common in the sector.
 
(vii) Regulations relating to by-products—There are several regulatory hurdles in respect of the by-products of sugar industry.
 
(viii) Other Issues — Jute Packaging Materials (Compulsory Use in Packing Commodities) Act, 1987 mandates that sugar be packed only in jute bags.
 
The main recommendations of the committee for the deregulation of sugar industries in India as per the Rangrajan Committee are as follows:
·      Markets ordinarily are a superior option to state allocation of both raw material and manufacturing capacities. Therefore, over a period of time, states should encourage development of such market based long-term contractual arrangements, and phase out cane reservation area and bonding.
 
·      The minimum distance criterion inhibits entry and further investment, and adversely impacts competition for purchase of sugarcane as well as for improving mill efficiency.
 
·      It would be fair to share the revenue pot of value created in the sugarcane value chain between the farmers and millers in the ratio of their relative costs and further suggest that the profit sharing should be in the ration of 70:30 between farmers and the mill owners.
 
·      Dispensing with levy sugar translates into doing away with a centralized arrangement for PDS sugar. The states which want to provide sugar under PDS may henceforth procure it from the market directly through a competitive bidding process according to their requirement and may also fix the issue price.
 
·      The mechanism of regulated release of non-levy sugar imposes costs directly on mills (and hence indirectly on farmers) on account of inventory accumulation, inability to plan cash flows, etc. Further, seasonal fluctuations in price are continuing. Hence, since this mechanism is not serving any useful purpose, it may be dispensed with.
 
·      Even though India contributes 17% to the global sugar production, its share in the exports is only 4%.The committee is of the opinion that trade policies on sugar should be stable. Appropriate tariff in the form of a moderate duty on imports and exports, not exceeding 5-10 per cent ordinarily should be used to meet domestic requirements of sugar in an economically efficient manner.
 
·      There should be no quantitative or movement restrictions on by-products like molasses and ethanol. Prices of by-products should be market-determined with no earmarked end-use allocations. Likewise, there should be no regulatory hurdles preventing sugar mills from selling their surplus power to any consumer.
 
·      Sugar industry (like cement and fertilizer industries earlier) should be removed from the purview of Jute Packaging Materials (Compulsory Use in Packing Commodities) Act, 1987 (JPMA).
 
The committee has suggested Rationalization of sugarcane pricing and liberalization of sugar trade need to be introduced over a two to three year period, in a calibrated and phased manner. However, levy sugar obligation and administrative control on non-levy sugar need to be dispensed with immediately.
Shashikant Nishant Sharma
 
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