The union cabinet has approved a proposal to decontrol the country's sugar industry on the basis of the recommendations of a committee headed by C Rangarajan, chairman of the prime minister's economic advisory council.
The decision to decontrol the Rs80,000-crore (around $15.5 billion) sugar industry is also in line with the UPA government's policy of easing controls to spur economic growth.
Lifting of controls would give sugar mills the flexibility to sell products in the open market. The food ministry will also cease buying 10 per cent of mill production through the levy-sugar mechanism.
Freeing of controls on sugar will help balance the interests of farmers and sugar mills. However, the government would continue to provide PDS sugar at a fixed price, food and consumer affairs minister KV Thomas said.
"There will be no levy on sugar for two years. There will be no change in the PDS price of sugar. There will be no burden on the consumer," Thomas said after the CCEA headed by Prime Minister Manmohan Singh cleared the proposal.
"We have taken the burden to protect the farmers and the consumers," said Thomas.
According to Thomas, the existing sugar export policy will continue.
Meanwhile, information and broadcasting minister Manish Tewari said the gap between the provisional cap on Rs32 per kg issue price of sugar under the public distribution system and the market price will increase the subsidy burden from around Rs2,500 crore to Rs5,000 crore.
India, the world's second largest producer of sugar, produces nearly 340 million tonnes of sugar annually and the industry provides direct employment to 500,000 people.
The industry also provides livelihood to 50 million farmers.
The Rangarajan panel report, submitted to the government last October, had recommended lifting all controls on the sugar industry.