Ever since sugar was brought under government control in World War II, the industry has been an arena of intrigue and corruption. The minister in charge in 2003, Ram Naik, was an expert in manipulation; this column from Business World of 1 September 2003 reviews some of his tricks.
The cremation of
sugar decontrol
The BJP government prides itself on its
commitment to the unshackling of the economy; in some areas it has even
demonstrated its commitment. It did not attempt to dismantle foodgrain
subsidies; it avoided touching fertilizer subsidies. But it went ahead with
some determination to decontrol sugar, and managed over the years to bring down
sugar levy from 40 to 15 per cent. One little jump, and the industry would have
been freed.
But, just when
the government got ready to jump the last hurdle, it drew back. In March last
year it put off sugar decontrol to October 2005. A very long second thought:
even if the BJP won the next election, its government would have much time to
change its mind.
Regrettable as
that was, what the government has been doing since then is bizarre. Sugar was
governed by the Sugar Control Order. It did not explicitly ban open market
sales – or so the sugar mills thought – and in the past year, quite a few of
them had gone to courts and obtained judgments that allowed them to sell sugar
beyond their free sale quota. Now the government has got through an amendment
to the Essential Commodities Act to prevent this. The amendment has still to be
tested in court, but in the meanwhile, the government is treating the sugar
mills that exceeded their free sale quota as criminals. It has refused free
sale quotas to about 200 mills. The most shameful part is still to come: the
government is thinking of a constitutional amendment to write sugar quotas in
stone.
A constitutional
amendment to force sugar mills to keep their sales within the quota? After all,
heavens did not fall when these sugar mills sold beyond their quota. The court
judgments gave the government a chance to rethink the policy of starving the
market with quotas and pushing up prices the consumers have to pay; it decided
that its priority was to screw the consumer. For a government that had promised
to sweep away the entire scaffolding of sugar control, this is an inexplicable
and sinister change of heart.
But worse was
still to come. The government took out Rs 600 crore from the Sugar Development
Fund and gave it to the governments of Uttar Pradesh, Punjab, Haryana and
Uttaranchal to give to farmers who sell their cane to private sugar mills. This
money has been collected by means of a cess on sugar mills of the entire
country. It is meant, as its name suggests, to develop the sugar industry –
breed better strains of cane, improve energy efficiency of mills, utilize their
byproducts, and so on. And what is this money going to be used for? The central
government has fixed a statutory minimum price of cane of Rs 78 a quintal; that
is what private mills in these states have paid cane growers. But the
governments have fixed state-advised prices of Rs 95-100 in UP and Punjab and
Rs 104-110 in Haryana. So this largesse will be used to raise the price the
farmers get to the state-advised price. The governments of Maharashtra,
Karnataka, Tamil Nadu etc will now think that they have been idiots. They acted
responsibly and decided not to fix state-advised prices way about the statutory
minimum prices. For that decision, sugar mills have been made to pay, while the
governments of the northern states have been able to reward their cane farmers
by simply fixing absurd state-advised prices. The southerners may be
responsible, but they are not stupid; next year they too will fix absurdly high
state-advised prices, and will ask the central government to pay their growers.
And if they have any sense, the northern government will raise the
state-advised prices even higher next year – to Rs 200, Rs 300, the sky is the
limit. As long as the BJP is banking on the BSP to win power at the center in
the next election, there is unlimited scope for blackmail.
In the
meanwhile, the minister of petroleum keeps himself busy squabbling with sugar
mills about the price of ethanol. After the decontrol of oil last year, the
minister has not enough to do – certainly not enough of the manouevring that
ministers specialize in. So he decreed that petrol will be contaminated with 5
per cent of ethanol, which is produced from molasses. He asked sugar mills to
produce it, and by now a number of them have set up ethanol plants. But this
ethanol costs more than petrol, and threatens to raise the price of petrol. So
Ram Naik is trying every trick to bring the price of ethanol down. He has asked
the Tariff Commission to investigate the sugar mills’ ethanol production costs.
He has written to state governments asking them to reduce the tax on ethanol.
Why? But why? Petrol works perfectly well without ethanol. The country is flush
with foreign exchange; it does not need to save on it. So much activity to put
things back!
