Sunday, April 7, 2013

After petrol, it is sugar now. It seems the government is in a decontrol mode. Though for sugar de-control is partial it is a step in the right direction. After the recent sugar de-control, the mills are free to sell their produce in the open market. Also, they are no longer obligated to sell their produce to the government at subsidized rates. The quota system has also been done away with meaning that the mills can sell as much sugar as they want in the market. Earlier government used to decide the amount of sugar that is to be sold in the open market.

We feel that decontrol will be beneficial to the industry as they will now be able to fetch a better price in the market. However, there is a lingering fear that this may lead to increase in sugar prices. But the government has assured that it would not happen. All states will continue to sell sugar at subsidised rates through ration shops. However, for that, they will procure the produce from open market at market determined prices. And the central government will subsidise the states for the difference in pricing. The said move is likely to double the government's sugar subsidy burden. But the industry will benefit as it will be able to freely price its produce. Nonetheless, it would be interesting to see how the government finances the subsidy considering that fiscal deficit is already above comfort zone at the moment.