Need to see how government recovers subsidy: Rangarajan

C Rangarajan, chairman, PMEAC, believes the government will now have to decide how it intends to compensate the subsidy burden it will face after the sugar sector decontrol.

Speaking to CNBC-TV18, he said reducing the overall subsidies as a proportion of gross domestic product is of vital importance and hence, the government is now faced with the big question of how these subsidies will be absorbed.  The government, on Thursday, partially de-regulated sugar sector, the only industry left under its control. It abolished the requirement of private sugar mills to sell a specified amount of sugar to the government at concessional rates. One of the riders of the decontrol is that sugar mills will not have any levy obligation for two years. Levy sugar is amount of sugar which is set aside from the total production for Public Distribution System (PDS).  Rangarajan, who had submitted the report on sugar sector in October last year while hailing the decision said the move is a step-by-step process and not something temporary. Also read: 7 things you need to know about sugar decontrol Below is the edited transcript of Rangarajan's interview to CNBC-TV18. Q: After a lot of dithering you submitted your report in October. The decision has finally been taken by the Cabinet Committee on Economic Affairs (CCEA), but they haven’t accepted your proposals in the entirety. What do you make of it? A: It is a step in a right direction. Our report had made several recommendations and one of the important recommendations was related to the withdrawal of levy sugar obligation. Therefore, I am happy that we are moving in the right direction and action of the government must be welcomed. Q: By your estimate, what do you think would be the implication of the decision to do away with levy sugar only for two years? Why has this happened at this stage? It has taken the industry by surprise. Infact, they are disappointed with this decision and nobody seems to be able to explain it. A: The decision has to be step-by-step. I believe that this is not something temporary. It will be continued even beyond the period that has been indicated. Perhaps, the government wanted to show that they are moving cautiously in this direction. However, I do think that things will work out alright and perhaps the decision that has been taken will be implemented even beyond two years. Q: The initial reaction from the sugar industry is disappointment on this business of doing away with levy obligation only for two years. As far as removal of the excise duty is concerned, the government has decided at this point in time not to impose the excise duty as was the proposal to make do or make good the loss on account of the obligation? A: The question really is how to compensate oneself for the subsidy burden. We are in a situation in which we need to reduce the overall subsidies as a proportion of gross domestic product (GDP). Therefore, we do not want to add the subsidy burden. However, it is a decision that will have to be taken in the context of the ability of the Finance Ministry to absorb these subsidies. Therefore, that is an independent decision, but what they have done now is essentially to bear the burden of the subsidy at a certain level. Q: You believe that the government may infact move to do away with that and in terms of pending sugar sector proposals that you have made what do you think are likely to be the future of those proposals? A: There are important decisions relating to the fixation of the sugarcane prices but that can be done only with the cooperation and the willingness of the state governments involved. The recommendation that we have made on revenue sharing is a good recommendation. It is a kind of recommendation which will benefit both the farmers and the mills but it will take some convincing. So, we need to work on that. In the meanwhile, there are other issues too that we had indicated, like the restrictions on the movement of molasses, the indirect price control over by-products and other things. They also must grow, but they are not entirely within the control of the central government. Some of them lie in the domain of the state governments, we need to discuss with them and move in that direction.