Financial Daily from THE HINDU group of publications
Friday, Dec 03, 2004
Agri-Biz & Commodities - Sugar
Scrap monthly sugar release system: Tuteja panel
New Delhi , Dec. 2
IN a major step towards de-control, the Tuteja Committee for revitalisation of the sugar industry has called for scrapping the monthly release mechanism for free sale sugar with effect from the 2005-06 crushing season (October-September).
Currently, mills are required to surrender 10 per cent of the sugar produced by them as `levy' for the public distribution system. The remaining 90 per cent `free sale' sugar can be sold in the open market, but even here it is the Government (the Sugar Directorate) that decides the quantum of sugar to be offloaded every month. Accordingly, mills are `released' a monthly free sale quota (FSQ), beyond which they cannot sell in the open market.
"The Central Government may dispense with the release mechanism for free sale sugar with effect from October 1, 2005," the 16-member Committee headed by the Secretary, Department of Food and Public Distribution, Mr S. K. Tuteja, said in its report submitted here on Thursday. This would mean that mills would have full freedom to decide on the timing of sale, depending on their perception of market prices or their liquidity requirement.
The report has, at the same time, suggested continuation of the current 10 per cent levy quota. However, if State Governments or the Food Corporation of India (FCI) do not lift the levy sugar within three months beyond the initial time limit, which is normally two months from the time of Directorate issuing the release order, "the levy sugar quota would automatically be converted into free sale sugar, without any recurring levy obligation on this portion of levy sugar."
The other significant recommendation made by the Committee is to increase the minimum radial distance (as the crow flies) between an existing sugar mill and a new factory from the existing 15 km to 25 km. This is seen as consistent with meeting the cane requirement of a mill with a 5,000-tonnes crushed per day (tcd) capacity. In fact, the report has specified 5,000 tcd as the `sustainable' size of a sugar plant in the current environment against the existing minimum norm of 2,500 tcd. In case mills want to expand their crushing capacity beyond the 5,000-tcd capacity, the additional cane requirement should "accrue through increased productivity and not by expansion of the area under sugarcane."
While enhanced `zoning' and reservation of cane area for individual mills may be viewed as going against the spirit of deregulation, the same is true for the Committee's other recommendation pertaining to the pricing of cane.
"The present arrangement of payment of Statutory Minimum Price (SMP) along with benefits of price sharing with sugarcane farmers as per Clause 5A of Sugarcane (Control) Order, 1966 is equitable and may continue," the report has said, even while not making any reference to the practice of State Governments fixing (advicing) cane prices over and above the SMP declared by the Centre.
The Committee has also suggested a compensation formula for mills covered under the 1993 and 1997 `incentive schemes,' wherein units licensed during 1990-1998 were exempt from any levy requirement for up to five years from the date of commissioning. Since the overall levy quota has been progressively reduced from 40 to 10 per cent over this period, it has been argued that the 56-odd units coming under the schemes have not derived the originally intended benefit.
"Keeping the incentives of 1993 and 1997 in view, the excise duty payable on levy sugar, namely Rs 38 per quintal, may be charged on 50 per cent of sugar sold by these units under their free sale quota, as against excise duty of Rs 71 per quintal payable on free sale sugar," the report has recommended.
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