The centre will bear an additional annual subsidy of Rs2,600 crore on account of decontrolling the sugar sector for two years, finance minister P Chidambaram said today.
The additional subsidy burden comes at a time when the country's fiscal deficit is estimated to have barely been brought down to levels around 5.2 per cent of its gross domestic product (GDP).
The CCEA had, early this week, decided to partially decontrol sugar by giving mills the freedom to sell in the open market, while removing their obligation to supply sugar at subsidised rates for public distribution through ration shops.
"States are free to procure sugar through competitive bidding or otherwise sugar mills at a price or inclusive price not exceeding Rs32 a kilo. The Government of India will bear the difference as a subsidy for two years," Chidambaram said.
Obviously, the centre wants to shift the burden of subsidy to states.
"Now, this decision means that eventually the states have to make their own arrangements (for PDS sugar). But for a period of two years, we are supporting a transition arrangement," the finance minister said.
However, sources pointed out that the subsidy burden would double post decontrol of sugar.
At present, the sugar subsidy is around Rs2,600 crore. This could go up to Rs5,300 crore post decontrol, they point out.
Chidambaram, however, said the decision of decontrol was overdue and has been taken after nearly about 20-21 years.
He recalled that during the P V Narasimha Rao regime, the government had nearly taken a decision to decontrol the sector. "But due to some reason, we pulled back at the last minute."
Chidambaram said the decision would help sugarcane growers. "We believe now with this step, the cane growers will be paid price for sugarcane promptly and they will not be denied their dues when the money is due to them.
"To hold back the farmers' money for six months is virtually equal to driving him to death. So this is a major step that will benefit farmers as well the industry," he said.
Chidambaram also quoted agriculture minister Sharad Pawar as saying that sugarcane arrears at in the range of about Rs11,000 crore, against Rs15,000-20,000 crore two-three years ago.
India, the world's biggest consumer of sugar and the second largest sugar producer after Brazil, is expected to produce 24.5 million tonnes of sugar in 2012-13 against an annual domestic demand of 22 million tonnes.
Chidambaram also said that the country's fiscal deficit could fall below 5.2 per cent with better revenue collection, which has recorded a healthy growth of 16.7 per cent and with savings in expenses, especially in defence.