New Delhi:
Focused on reducing its subsidy bill, the government is mulling whether the price of sugar sold at ration shops can be hiked by a whopping Rs. 10 a kg. The Cabinet was expected to discuss the issue at a meeting today but has moved it to a later date due to the absence of Food Minister KV Thomas. If approved by the government, it will be the first hike in 10 years. But, huge political opposition and the timing, just before the festival season, will make this a difficult decision to push even in reforms season.
The price of sugar available through the Public Distribution System (PDS) or ration shops is Rs. 13.50 and has not been increased since March 2002. To support that subsidy, the Centre bears a cost of Rs. 3000 crore a year. The Food Ministry, in a note to the Cabinet Committee on Economic Affairs (CCEA), has not recommended any specific price rise, but says that the government will not have to pay any subsidy on levy of sugar if prices are raised to about Rs. 23.50 per kg.
Any such move, less than a month before the
Navratras or
Pujas and with Diwali to follow, is likely to be opposed even by Congress-ruled states. The Opposition - which is already baying for the government's blood over the rise in diesel prices and the cap on supply of subsidised cooking gas - will undoubtedly sharpen its attack on what it calls an "anti-people, anti-poor" Centre. Even allies like the DMK are dead opposed to this cut in subsidy.
Congress spokesman Manish Tiwari defended the move. "Ultimately social equity and economic growth have to be balanced...Since 2008, the international situation has been bad and has been felt on the Indian economy...It's time to bite the bullet...Burden of debt is neither good for economy or individual...we need to rationalise subsidies...If at all the government takes a decision, we will cross the bridge when we get to it," he said.
The Cabinet, say sources, could take a middle path and announce a smaller hike - the numbers make a compelling case. With every rupee that it hikes the price of PDS sugar by, the government will save Rs. 270 crore a year, the ministry has said. The Centre provides states with 270 lakh tonnes of sugar.
In the marketing year 2011-12 (October-September), the Food Ministry paid about Rs. 19.50/kg to sugar mills for procuring sugar for sale through the PDS.
Under the levy obligation, sugar mills are required to sell 10 per cent of their output to the government at below cost rates for supply to ration shops.
Mills supply levy sugar at 60 per cent of their cost of production, resulting in an annual industry loss of about Rs. 2,500-3,000 crore.
Against the country's annual sugar demand of 22 million tonnes, mills are estimated to have produced 26 million tonnes of sugar in the 2011-12 marketing year.
(With PTI inputs)