In a major reform, the Indian government on Thursday partially decontrolled the Rs 80,000-crore sugar sector by giving freedom to millers to sell in the open market and removed their obligation to supply the sweetener at subsidised rates to ration shops.
Food Minister K V Thomas maintained that the decision will not lead to any increase in retail prices and said the government will continue to sell subsidised sugar through ration shops after procuring the sweetener from open markets.
The decision will lead to government's annual sugar subsidy doubling to Rs 5,300 crore, while industry will save about Rs 3,000 crore per year.
The decision to partially decontrol the sugar sector, the only industry left under the government control, was taken by the Cabinet Committee on Economic Affairs (CCEA).
Mills at present have to sell a portion of the sweetener they produced at a fixed rate of about Rs 20 per kg to the government. After the decision, they are free to sell all of their produce in the open market.
After buying sugar from mills, the government supplies to people via ration shops at Rs 13.50 per kg.
Following the decision taken by CCEA, headed by Prime Minister Manmohan Singh, states will now procure sugar from open market. The centre will subsidise such state purchases up to Rs 32 per kg for two years (till September, 2014).
Thomas said the government subsidy outgo - because of having to subsidise state purchases - would rise from Rs 2,600 crore to Rs 5,300 crore per annum.
"Chini meethi thi, meethi rahegi (sugar was sweet and will remain sweet for common man)," Information and Broadcasting Minister Manish Tewari said when asked if the decision would lead to an increase in retail prices.
C Rangarajan, whose panel recommendations formed basis of the CCEA decision, said the decision was "sufficient incentive to the sugar mills".
Industry body ISMA said the move would improve cost of production and improve liquidity with millers which in turn will ensure timely payment to farmers. (With PTI inputs)