The decontrol of sugar after 20 years has come at the right time as there is a surplus both internationally and in the domestic market. So prices are unlikely to shoot up immediately. International sugar prices (around `29/kg) are lower than domestic prices, so the surplus of around three million tonnes can’t be exported.
It must release their stocks of sugar into the market and it is possible prices could fall if there is competition among industry players.
While the industry was saved `3,000 crores as it no longer has to release sugar to the public distribution system at below market prices, the government’s subsidy burden has increased by a hefty `5,300 crores against the earlier `2,600 crores. This is because the government must foot the bill for the gap between the `32/kg ex-mill price of sugar and the `13.50/kg rate at which it is sold in PDS. The government possibly wants to show its commitment to reforms and implemented sugar decontrol as recommended by the C. Rangarajan Committee while it fights to maintain the huge fiscal deficit target.
For now, decontrol won’t affect the consumer adversely, but one has to see what happens if there is a shortfall in sugar production domestically and globally. In the past, free markets in agricultural produce, like cotton and soya, have worked only in favour of traders and speculators. Farmers rarely get the advantage of higher prices.