A few months ago, Railway Minister Pawan Kumar Bansal was at pains to explain the desperate need to raise rail fares. The hike is expected to raise additional annual revenue of Rs 6,600 crore and reduce fiscal deficit.
Union Finance Minister P Chidambaram has been looking at every opportunity to reduce the burgeoning subsidy bill. The undue haste in launching direct cash transfer, the prolonged calibrations in containing the Food Security Bill, and the failed experiment in promoting balanced use of fertilisers were all aimed at clipping wasteful subsidy expenditure.
The partial decontrol of sugar therefore comes as a surprise. That the mills will no longer be forced to sell 10 percent of their produce at low prices to meet the requirements of the public distribution system, is certainly a sweet decision for the Rs 80,000 crore industry. In addition, as per the recommendations of the Rangarajan Committee, the release order mechanism has been abolished. This means that the mills will no longer have to wait for a direction from the government as to when and how much sugar they will release in the market.
What is baffling is the doubling of the subsidy bill from the existing Rs 2,600 crore to an estimated Rs 5,300 crore. While the sugar industry will stand to gain by approximately Rs 2,700 crore from the abolition of levy sugar quota, Chidambaram has already acknowledged that the annual subsidy bill will now grow by an additional Rs 2,600 crore for the next two years. All that the government has done is free the sugar mills of the financial burden, and take the liability on itself. This is “privatisation of profits, and socialisation of costs”.
The annual increase in the subsidy bill will in turn increase the fiscal deficit. But no questions have been asked. Decibels are only raised when subsidies are doled out for the poor; for the rich it constitutes economic reforms.
Moreover, a day after the decision was announced, sugar stocks of the same “cash-starved” companies jumped. Stocks of Shree Renuka Sugars, Balrampur Chini Mills, Dhampur Sugar Mills, Sakthi Sugars, Bajaj Hindustan and others continue to rally high.
Providing a financial bounty to the sugar industry in an election year has its own rewards. The timing of the crucial decision has to be seen in light of the changing electoral configurations. It has killed two birds with one stone.
First, the decision is certainly aimed at appeasing Sharad Pawar of the NCP and to some extent Mulayam Singh Yadav of the Samajwadi Party (SP). In the wake of the talk over the revival of the Third Front, keeping the sugar barons happy will impact the fortunes of the ruling party alliance. Like the 12,000 crore package expected for Bihar in the 12th Plan period ostensibly to appease Nitish Kumar, keeping the remaining flock together is the immediate priority.
At the same time, the government has refrained from fiddling with the cane pricing formula as per the Rangarajan Committee recommendations. Doing away with the State Advised Price (SAP) for cane, which the industry has always been complaining against, has been kept in abeyance, and rightly so. Price decontrol may help big cane growers who can afford the market risk, but for the small farmers, only SAP provides an assured price. Also, for the time being, the government knows that the sugarcane growers lobby is strong in Uttar Pradesh and Maharashtra. Electoral tremors will also be felt across the country, from Punjab to Tamil Nadu. But this is only a temporary reprieve. Once the impending elections are over, the industry will push for completing the remaining decontrol process.
And this is where a wider consultative process should happen rather than simply going by the recommendations of the Rangarajan Committee. In Punjab, Haryana and UP, for instance, sugarcane cultivation requires 1,60,00,000 litres of water per hectare. Sugarcane is a water guzzler and poses the biggest threat to food production. At the same time, world over, the emphasis is on reducing sugar consumption in wake of the growing awareness about its negative health impacts. It is time India moves away from what is good for the sugar industry to what is good for its people. It is time to make a historic correction.
Devinder Sharma is a Food Policy analyst