Moneycontrol
HomeNewsBusinessCompaniesSugar decontrol: States must adopt new system, says ISMA
Trending Topics

Sugar decontrol: States must adopt new system, says ISMA

Gautam Goel, President of ISMA believes it is a very welcome move and hopes that the states adopting State Advisory Price (SAP) will now move on to the new recommendation of profit sharing.

October 12, 2012 / 17:06 IST
Story continues below Advertisement

Your browser doesn't support HTML5 video.

An expert panel led by PMEAC chairman C Rangarajan on Friday suggested a mechanism for decontrolling sugar. The panel is in favour of providing freedom to the sugar mills to sell their products in the open market. It has also recommended scrapping of state declared cane prices. Moreover, the committee has also recommended fair and remunerative price (FRP) for cane purchase.


Gautam Goel, President of ISMA believes it is a very welcome move and hopes that the states adopting State Advisory Price (SAP) will now move on to the new recommendation of profit sharing. According to him, this practice is prevalent all over the world and is successful in all the major sugar producing countries.

Here is the edited transcript of the interview on CNBC-TV18.

Q: Your first thoughts on this abolition of the State Advisory Price (SAP) and replacing it with a 70 percent profit sharing Fair and Remunerative Price (FRP) being the main price paid to farmers. Do you think this package will now rid the sugar industry? What are your first comments?


A: We welcome the report and the broad recommendations that they have specified. What I have heard on television is that the report deals with sharing of cane price with a basic sharing formula which is what ISMA has been advocating for a long time. We sincerely hope that the state governments which are adopting the SAP system will move onto the revised system which is prevalent all over the world and still working successfully in all the major sugar producing countries.


Due to this process, they have got immense amount of investments coming into the sector. Probably this could become one of the ways in which investment into the agricultural sector could be heralded. The second bit is of course doing away with levy.


We are perhaps the only industry which is subsidizing the PDS and by we, I mean not only the sugar millers but indirectly it goes down to the farmers too. It has pretty much been proven that it is not the most efficient system and we completely agree with what Dr. Rangrajan has suggested in doing away with levy.


Let the states decide how and in which manner they want to provide sugar to the PDS. Third bit is the release mechanism. I think it has pretty much been established in all commodities that the market forces are the best judges of how the quantity in any commodity should be bought and sold. Probably, government interference in this field is no longer warranted in today’s time and maybe is not the most efficient way to allow industries to function.


I think we will have to go through the report in greater detail, but broadly speaking we are in complete concurrence with what this report suggests.

Q: Wanted your thoughts in terms of the 70/30 revenue share mechanism which is currently being proposed. Give us a sense in terms of how exactly would that work and the implementation of something like this? Would you see some amount of bottlenecks in terms of this coming through smoothly?


A: Dr. Rangarajan also suggested the mechanism by which this 70/30 could be implemented. We will have to study that in greater detail. I can tell you that this system is pretty much prevalent in lots of places, whether it is in Brazil, Australia, Thailand or other places around the world. Revenue sharing system is already prevalent, so I see no reason why it cannot work in India too.


_PAGEBREAK_

Q: The problem really will be, will the states buy it? That is the big part. It has been there right to set an SAP. Will they buy it, that will be the big problem, isn't it?


A: We can always hope for the best. I agree with what you are saying. Let’s hope they buy it. If it is a good system and this is something which I guess the centre and the Indian sugar industry will have to work towards convincing the state that this is a better system and you need to adopt the system.

Q: What's your sense? My big fear really is that it is a great recommendation but you are taking away what is essentially a state subject. What we are used to, what has been a big power lobby or big vote bank. Will it work?


A: Broadly speaking, I agree with what Mr. Sawhaney is saying that the system is already prevalent in Maharashtra and Karnataka. Whether it is in the cooperative sector or in the private sector in Maharashtra and Karnataka, there is a two tier system which is prevalent.


To be honest, the concept of sugar mills tampering with accounts is completely unwarranted. We are all publicly quoted companies. These things are not acceptable in today’s environment. It is not going to be easy to convince people to implement this two tier system, but it is not something which cannot be done.

Q: I guess it is only Uttar Pradesh which has to be really convinced. The others would be marginal players considering that Maharashtra and Tamil Nadu are already in.


A: Yes, the people who are already in are basically Maharashtra and Karnataka. Tamil Nadu also follows SAP, but UP and Maharashtra are the two largest sugar producers. These two states jointly produce about 60 percent of the sugar in the country and probably UP would be the largest sugar producer in the coming year. I agree with what you are saying that UP probably is going to be the most important state when it comes to convincing about the SAP formula.

first published: Oct 12, 2012 02:26 pm

Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!