Saturday, April 6, 2013

Sugar Decontrol to up Subsidy Bill by Rs. 2,500 Crore: Chidambaram

The government's subsidy bill will shoot up by Rs. 2500 crore per year on account of decontrol of sugar, Finance Minister P Chidambaram said on Saturday.

The Cabinet decided on Thursday to decontrol the Rs. 80,000-crore sugar industry. While the move does not affect open market prices, the government will pay the difference between ex-mill price of Rs. 32 and the public distribution system (PDS) price of sugar.

The finance minister said that the states will have to make their own arrangements. "States are free to obtain sugar from competitive bidding and from sugar mills," he said, adding that the difference will be born by the government as a subsidy for two years.

In October last year, a panel headed by Dr C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, had recommended the removal of two control measures -- the regulated release mechanism and the levy sugar obligation -- immediately and of other restrictions gradually.

At present, the sugar sector is controlled from production to distribution. Through the release mechanism, the Centre fixes the sugar quota that can be sold in the open market. Under the levy system, it asks mills to contribute 10 per cent of their output to run ration shops costing the industry Rs. 3,000 crore a year.

The government currently buys sugar from mills for about Rs. 20 per kg and sells to ration card holders for Rs. 13.50 per kg.

Under the decontrolled regime, the sugar requirement of states for the public distribution system (PDS) will be met through purchases from the open market and the states will be given a fixed subsidy based on their existing allocations.

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