The Tamil Nadu government has strongly protested the Centre's decision to partially decontrol the sugar sector, saying the move to remove levy obligation on sugar mills and decontrol the regulated release mechanism will adversely impact supply of the sweetener through the public distribution system (PDS).
Chief Minister J Jayalalithaa on Thursday said there was no clarity over the continuance of the Centre's subsidy scheme in this matter beyond the financial year 2014-15.
At present, levy sugar released to Tamil Nadu by Centre was 10,835 MT per month, which met only one third of the total requirement for distribution under PDS.
Her government was "already incurring heavy expenditure towards providing subsidy for supply of sugar through the PDS", Jayalalithaa said in a letter to Prime Minister Manmohan Singh.
Under the new dispensation, Centre will provide a subsidy of Rs 18.50 per kg only for the quantity committed under levy, but to be procured in the open market, with a rider to retain the retail price of Rs 13.50 per kg at Fair Price Shop levels, she said.
The state had been informed this subsidy by the government will be available only for the financial years 2013-2014 and 2014-2015, adding "there is no clarity whether this arrangement will continue beyond 2014-2015."
"The sudden withdrawal of levy obligation on sugar mills will expose the supply of PDS sugar to the vagaries of the market and the resultant volatility. Further, any price fluctuation over Rs 32 per kg in the open market will have to be borne by the State, which is already saddled with a huge subsidy burden," Jayalalithaa said.
The new arrangement will also create uncertainty in ensuring adequate supply of sugar through PDS at affordable cost to the poor, as the state will have to procure the entire stock from the open market, she added.