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RECOMMENDATIONS OF THE MAHAJAN COMMITTEE

Introduction

The government of India recently set up a high-powered committee to study the development and growth of the sugar industry in India vis-à-vis other sugar producting countries, and suggest

Highlights

1. Complete Decontrol Of Sugar Price
2. Supply Of Sugar Through PDS
3. Statutory Minimum Price
4. Sugarcane Pricing Board
5. Statutory Minimum Payment for Cane
6. Licensing Of New Sugar Mills
7. Cane Area Reservation
8. Direct Links with Farmers
9. Sugar Import Policy
10. Annual Export Quota
11. Abolition Of Incentives
12. Location of New Khandsari Units
13. Abolition Of Licensing Of Sugar Wholesalers
14. Support for R&D Efforts

1. Complete Decontrol Of Sugar Price

In the opinion of the Committee the present system of partial control leads to higher market price for free sale sugar as the mills have to compensate themselves for the loss incurred in supplying 40% of the production in levy at below cost. This puts the domestic sugar industry at a disadvantage vis-à-vis imports and discourages exports, aggravates cyclical fluctuations in production as the sugar mills are unable to compete with Khandsari units during period of low cane production so that smaller percentage of limited cane supplies become available to the mills. The dual price system in the opinion of the committee also encourages setting up of mills in high cost areas thereby building up of a high cost sugar industry, it is the principal reason for the poor financial health of the industry and for investment in the industry not forthcoming without special incentives and it also leads to widespread resentment among cane growers as they feel that they have to bear the burden of subsidy for sugar in PDS unlike other commodities where the burden. of subsidy is borne by the Government. The Committee has however recommended the phasing of decontrol over a period of two years to allow time to such factories as have been set up in relatively high cost areas due to advantage of high levy price under the system of partial control to take necessary steps to improve their efficiency so that they can face the competition. It has also suggested that control on releases should continue even after complete decontrol of sugar prices in the interest of stability of sugar prices.
List of Highlights

2. Supply Of Sugar Through PDS May Be Discontinued When Complete Decontrol Becomes Effective

As there are large scale leakages of levy sugar into open market, large percentage of subsidy is availed of by the non-poor and even where sugar reaches the card holders its financial benefit is very small. The poor consumers in the rural areas are in fact the net losers as they consume mainly Gur / Jaggery whose prices move in tandem with price of free- sale sugar and would therefore be higher than they would be under a system of complete decontrol. The Committee has expressed the view that the subsidy at present allowed in supply of sugar through PDS can be distributed among the beneficiaries by adding to the subsidy at present allowed on food grains. It has suggested that if the Government nevertheless wishes to continue supply of sugar under PDS, the required quantity may be purchased from industry or trade by tender mg or at fixed prices from the mills as adopted by banks for valuation of sugar study for working capital loans. It has expressed the view that the additional subsidy would be offset to some extent by higher realisation from excise duty on larger quantum of free- sale sugar on which excise duties are higher than on levy sugar and if there is still any deficiency the balance may be met by suitable increase in excise duty on sugar.
List of Highlights

3. Announcement Of Statutory Minimum Price For Sugarcane

This should be continued even under system of complete decontrol on sugar prices as a guarantee of a minimum price to the growers. It has however suggested that the SMP should be based mainly on the cost of production of sugarcane and return to the growers from alternative crops and should be de-linked from the price of sugar in the market. It has also recommended that in-stead of linking SMP to percentage of recovery of sugar, which is also influenced by the state of machinery and the operational efficiency of the mill it may be linked to the sugar content of cane supplied by growers to the mills and a premium may be allowed on the varieties which have higher sugar content.

So far as actual cane price payable to the growers is concerned the Committee has recommended a fixed share for the growers in the sale realisation from the sale of sugar as is the practice in most of the major sugar producing countries in the world. It has suggested that the share of growers may be fixed on the basis of percentage of average cost of purchase of sugarcane to total sales realisation from sale of sugar (excluding excise duty and cess and incidence of purchase and other taxes levied on sugar cane by State Governments) during the last ten years. Cane price will be fixed separately for different zones, formed but on the basis of level of sugar prices and recovery percentage of sugar. Within a zone all mills will be required to pay the same price. The growers in a zone with higher average recovery than all India average will get proportionately higher cane price as factories in such zone will have relatively higher capacity to pay.
List of Highlights

4. Setting Up Of a Sugarcane Pricing Board
This would comprise an economist of repute as Chairman and senior officers from Departments of Sugar, Civil supplies and Ministry of Agriculture, Economic Adviser in the Ministry of Finance, one representative each from the two apex organisations of the industry viz. National Federation of Co-operative Sugar Factories and Indian Sugar Mills Association and two representatives of cane growers- one from the tropical zone and another from the sub-tropical zone to be nominated by Government of India as members. The Board will determine in September each year advance price for ensuing crushing season on the basis of likely sugar prices and final price for each zone will be determined by the board before the end of November next based on the actual ex-factory sale prices.
List of Highlights

5. Statutory Minimum Payment Within 15 Days of Supply of Cane

Mills should be statutorily required to pay minimum of 80% of the advance price determined by the Board within fifteen days of supply of cane by the growers and the remaining amount before the end of the Sugar season. The difference between the advance price and final price shall be paid by the mills within fifteen days of announcement of final price. It has suggested for a provision being made in all the States for recovery of a arrears of sugarcane prices remaining unpaid till the end of Sugar Season as arrears of land revenue besides payments of interest at the rate of 15% on any delay in payment. The Committee has suggested that the Co-operative sugar mills in Maharashtra, Gujarat and North Karnataka may continue the present practice of distributing the sale proceeds amongst the member growers if;1hey so desire and the co-operative mills in other States in which the growers have majority of share capital may also be free to adopt that system at their option.
List of Highlights

6. Existing Policy For Licensing Of New Sugar Mills May Continue with Modifications

Certain modifications would be made such as are necessary to ensure that new sugar factories are not installed very close to the existing sugar factories which would adversely affect the financial viability of the latter and also discourage the factories from investing in cane development in their area. They have however suggested that there should be no need for license for expansion in capacity although applications for allocation of additional cane area where required will have to be made to the State Government concerned before expansion is undertaken.
List of Highlights

7. Continuance Of The Existing System Of Cane Area Reservation

Under this system all cane growers in the reserved area of the mill are required to supply cane to the specified mill and the mill is obliged to crush all cane bonded by the growers from the reserved area for supply to the mill. it has come to the conclusion that in the absence of this system, it will be difficult for sugar factories to regulate the supply of cane by the farmers according to the crushing capacity) available on each day, resulting in inadequate sugarcane available on some days and excessive cane coming to the mill on other days leading to long waiting period for the growers, some of whom may have to carry their cane to distant mills for disposal. involving higher transportation cost as well as driage of cane. The system is also, in the view of the Committee, necessary to provide incentive to the mill to undertake cane development. The Committee has made a number of recommendations to strengthen the system and make it more equitable. In order to strengthen the incentive for cane development by the mills it has recommended that reservation of area should be on permanent basis and any area should be transferred from reserved area of a factory to another only if cane availability in its area is surplus to its requirement for its existing capacity including expansion under implementation. In order to provide dis-incentive against neglect of cane development by any factory it has suggested that if the per hectare yield of cane in the reserved area of a factory is lower than the average in other similar areas due to insufficient cane development work, the availability of cane in the reserved area may be based on the average yield in similar areas.
List of Highlights

8. Direct Links with Farmers

The Committee has suggested that mills in all States should be free to have direct link with farmers as regards cane supply payment of cane price and cane development. It has however recommended the setting up of an organisation in the area of each mill to represent the interests of growers.
List of Highlights

9. Sugar Import Policy

The Committee has expressed the view that the Indian Sugar Industry is generally competitive and given a proper policy environment it should be able to face competition from the foreign producers. It has accordingly recommended that the sugar may continue to be on OGL to protect the consumers against any undue rise in the price and provide stimulus competition to sugar mills to minimise cost. However, in order to provide a level playing field to the domestic producers it has recommended that import duty may be levied at 40% of average difference between ex-factory price of free-sale and levy sugar during the past five years so long as the system of partial control continues. This would amount to about Rs. 130/- per quintal. It has also suggested countervailing duty of Rs. 85/- per quintal to cover excise duty and cess on sugar levy by Government of India and Rs.50/-per quintal to cover incidence of taxes on purchase of sugarcane levied by coastal States.
List of Highlights

10. Regular Annual Export Quota of One Million Tonnes of Sugar

This will enable the industry to plan properly by way of setting up of extra capacity, organising production of export quality and building markets. Additional quota may be released after the end of April when production estimates have formed up in instalments not existing one million tonnes at a time so as not to disturb the market.
List of Highlights

11. Abolition Of Incentives

Under this scheme, new sugar mills were allowed exemption from levy for 5-8 years and the factories undertaking expansion were also allowed exemption from levy on the additional production for 5 years, in the case of letter of intent to be issued in future and have suggested that efforts should instead be made to make the industry financially vial to attract investments. It has come to the conclusion that while the schemes have played useful role in the past in attracting investment for setting up of new sugar mills and expansion of capacity of existing mills, it adversely affects the existing units, particularly those in the vicinity of new units and encourages setting up of new units instead of expansion of existing units which is more economical and setting up of new units in areas where the cost of production of sugar is comparatively higher. It has also tended to encourage the setting up of large number of smaller capacity plants and prevent the industry from fully utilising the economies of scale. The committee has however recommended that on grounds of equity iincentive should be allowed to all those units which are at present enjoying such benefit for the balance period of their entitlement and also to new units where letters of intents are issued before the issue of Government Orders for discontinuance of the scheme. The Committee has suggested that after decontrol of sugar prices these units may be compensated by appropriate grant from the SDF for the period provided in the present scheme in case of new units and expansion projects or for the balance period under the relevant scheme in case of units which have already availed of incentives for some time me. It has also suggested that there is any difficulty in compensating this loss from the SDF, the expenditure may be met by levy of a specific cess for the purpose for a limited period during which the grants are payable.

12. Location of New Khandsari Units

The Committee has recommended that no new licence for khandsari units should be allowed within the reserved area of a sugar mill and within 25 kms from the site of a sugar mill so that sugarcane produced within this area is available to the mill for crushing and loss in sugar production involved on account of its crushing by khandsari units which have low sugar recovery is avoided. It has however recommended that khandsari units located outside the area of the sugar mill may be allowed to install vacuum pan and modernise and expand without any restrictions. However units with crushing capacity in excess of 500 tonnes per day may be required to supply sugar under levy subject to incentives available to new units and may also be required to pay excise duty at 50% of that imposed on sugar. It has also made a number of recommendations for technical up gradation of khandsari and gur industry.
List of Highlights

13. Abolition Of Licensing Of Sugar Wholesalers

Existing restrictions on stock-holding limits and period of turn over should also be abolished as these serve no useful purpose and are counterproductive.
List of Highlights

14. Support for R&D Efforts

The Committee has made a number of recommendations for strengthening the research and development efforts for sugarcane cultivation as well as sugar industry and stronger association of the industry and the growers to ensure that R & D efforts effectively help the industry and the growers by reducing cost of production of sugar, better utilisation of by-products of the industry and dealing with the problem of sickness, particularly in the co-operative sector. It has also made recommendations for reducing the magnitude of cyclical fluctuations in production of sugar and recommended maintenance of buffer-stock on a regular basis. It has also made recommendations for more effective utilisation of the funds available in the SDF for promoting R & D efforts in sugarcane cultivation and sugar industry, development of sugarcane cultivation by the factories, rehabilitation of sick sugar mills and helping the factories to install necessary pollution control measures.


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