Expanding controls on sugar industry will stifle output

For most industries, government policy has moved towards dismantling controls and improving ease of doing business. However, the policy regime for the sugar industry seems to be going the other way. After taking a few steps towards decontrol until 2012, the Centre has been reinstating controls in a bid to manage fluctuating output and sugar price inflation. The Centre now proposes to expand the scope of the Sugar Control Order 1966 through a new version that seeks to extend existing controls on the procurement, production, storage, transport and sale of refined sugar, to raw and khandsari sugar producers and the entire chain of by-products.

The new Sugar Control Order seeks to widen the definition of ‘sugar’ to refer to raw sugar and khandsari sugar (sugar produced from liquid jaggery without refining) units with a capacity of over 500 tonnes per day. This will allow raw sugar units to sell their produce in the open market, which wasn’t permitted earlier. However, they will also need to operate under a government licence, subject themselves to quality checks, procure cane at government-decided Fair and Remunerative Price and wait for government directions to sell or move their output. They and their distributors will also be subject to government diktats on storage, transport, sale and packaging of sugar in jute bags. Officers of the Central government have long had powers to direct sugar producers and dealers to maintain specific records, inspect books and search and seize stock. The draft order now requires them to maintain records in digital form and share real-time data with the government through API integration.

Given that raw and khandsari sugar are lately in demand due to consumer preference for non-chemically processed sugar, a higher bar on book-keeping or quality standards is welcome. But expecting these units, which have traditionally belonged to the informal sector, to procure cane at FRPs, adhere to minimum selling prices and maintain digital records and share data on a real-time basis seems to be a stretch. By-products of the sugar production process such as molasses, bagasse, alcohol and ethanol will also be subject to the same controls as sugar, over their production, storage, transport and prices.

The Centre is probably proposing these changes to ensure that its existing controls on refined sugar and are not undermined by leakages from raw sugar or by-product makers. But in the long run, trying to substitute the operation of market forces in an industry with micro-management of demand, supply and prices creates uncertainty for entrepreneurs. This can stifle supply of sugar, raw sugar, khandsari and ethanol. Controls on the sugar industry are a vestige of an era where sugar was a major item of household consumption. Today, with sugar making up just 1.4 per cent of the Consumer Price Index (over 60 per cent of its demand is accounted for by institutional buyers), the idea is an overkill.