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Wednesday, Feb 13, 2002

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Sinha speculates on sugar futures

Sharad Joshi

JUST as students suddenly wake up before the examination to the fact that they are not prepared for the test, the Finance Ministry too finds itself short of time to fine-tune things when the Budget is around the corner.

It remains preoccupied with so many matters — domestic and international — that issues relating to the next Budget get pushed to the back-burner. Come first week of February the prospect of having to make an impressive Budget speech looms large on the Finance Minister's horizon. They instruct their staff to check up on the progress on the promises made in the last Budget speech. If the reports show no or unsatisfactory progress, they try to push measures that would make the performance seem more or less acceptable.

The Finance Minister, Mr Yashwant Sinha, has remained unusually busy since the presentation of the last Budget, when he had said: "The agriculture sector is constrained by existence of a number of inhibiting controls and regulations, including the Essential Commodities Act. In the changed present situation, undue restrictions on movement and stocking of foodgrains and agricultural produce are acting as a disincentive to farmers."

Little had been done during the year to fulfil the commitment. So the ministries concerned woke up collectively and got the Cabinet to clear a host of long-pending reform measures, especially in agriculture and pharmaceuticals.

All restrictions on the movement and storage of foodgrains, edible oils and sugar are being removed. The sugar industry is proposed to be completely decontrolled in the coming fiscal year with the conditionality that the futures trading in sugar becomes operational. Permission to three applicants — e-Commodities Ltd., Mumbai, NCS InfoTech Ltd., Hyderabad, e-Sugar India Ltd., Mumbai — has been granted; only the first one is likely to take off.

Export of wheat and wheat products, coarse grain, butter and pulses has been freed. Even the history-making onion is permitted for export up to 7 lakh tonnes per annum. To establish its pro-reform credentials, the Government has unveiled a new drug policy, apart from promising a sizeable downsizing of government staff with a VRS package.

The scope of the Essential Commodities Act has been abridged by eliminating a number of commodities, mainly non-agricultural. The Finance Minister's promise last year mainly related to removal of restrictions on movement and storage of agricultural commodities that act as disincentives to farmers. A closer scrutiny of the announcement raises serious questions about the bona fides of the measures announced.

One, the list of agricultural commodities covered by the Essential Commodities Act remains unchanged. Two, clearance for export of wheat and wheat products, and so on, is unlikely to have any significant impact. Three, the quota system persists for onion. Briefly, the only serious reform in the agriculture sector concerns sugar decontrol. Whether total abolition of the system of levy procurement at a depressed price will encourage the sugarcane producers or the sugar lobby is a moot point.

Back in the 1980s, Chaudhary Charan Singh of the Janata Party had abolished levy on sugar in a move clearly aimed at appeasement of the consumer in a situation where stocks of sugar were aplenty. Charan Singh's misadventure resulted in farmers being forced to burn their standing sugar cane crops and howling protest. And he had to beat a hasty retreat.

Is the NDA government replicating Janata Party's disastrous misadventure? The sugar lobby has started protesting. Mills are over-burdened with large stocks caused, at least in part, by the reckless import of sugar from Pakistan in the last years. The minimum the Government could have done by way of providing a security net was to build up an adequate buffer stock of sugar, thus relieving sugar mills of their burden.

How serious is the conditionality about operationalising futures markets? Does it amount to a political ploy to postpone indefinitely the decontrol of sugar? The text of the announcement does not lay down any specific standards or parameters for judging the operational efficiency of futures markets. It would be, thus, almost open to the Government to keep the decontrol in abeyance on the pretext that the working of the futures exchange is not entirely satisfactory.

If the conditionality is not meant as a political gimmick, it makes a lot of sense. If the sugar mills can sell on the futures markets according to a schedule close to their free sale release quota, the chances of cascading prices would only be minimal. In any case, the operations at the spot and the futures markets will produce a far healthier situation than that under the regime of monthly releases of quota for free sale sugar.

The Finance Minister has awaken almost at the last moment. The measures he has taken are peripheral and marginal. But they are steps in the right direction and, if the futures market in sugar takes off, Mr Sinha might cover himself in glory. If it does not, he might go the way of so many unsung predecessors.

(The author is founder-president of the Shetkari Sanghatana.)

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