Sharad Pawar in New Delhi on Monday. (PTI)
New Delhi, Feb. 18: The agriculture ministry is in favour of hiking the excise duty on sugar by Rs 1.50 per kg to offset the financial burden on the Centre if it decides to buy the sweetener from the open market for ration shops.
“We support the food ministry’s proposal in this regard,” agriculture minister Sharad Pawar told reporters on the sidelines of the annual general meeting of the Indian Council of Agricultural Research.
At present, the excise duty on sugar is about 70 paise per kg. The Centre requires 27 lakh tonnes of sugar annually for the public distribution system (PDS).
The sugar mills, at present, have to compulsorily sell 10 per cent of their production, termed as levy sugar, to the government for Rs 17 per kg against the market price of Rs 31 per kg.
The government sells this sugar at Rs 13.50 per kg to 6.52 crore families through ration shops, bearing a subsidy of Rs 2,300-2,500 crore a year.
In October 2012, an expert panel headed by C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, had recommended immediate removal of the two major controls – the regulated release mechanism and levy sugar obligation.
Under the regulated release mechanism, the central government fixes the amount that can be sold in the open market.
“The food ministry has moved a cabinet proposal on the removal of levy sugar and continued supply of subsided sugar through PDS. Once the levy system is removed, the government has to buy it at the open market price. To reduce the financial burden and continue the supply of subsidised sugar, the food ministry has proposed increase in excise duty. We have supported the proposal,” Pawar said.
The Rangarajan panel had said removal of the release mechanism would help mill owners to manage inventories and ensure better cash flows. Further, abolishing the levy system could help the industry save about Rs 3,000 crore annually.
However, analysts said this step would increase the government’s subsidy burden substantially as the difference between the cost of buying from the open market and the sale price would be too high to be covered by a Rs 1.5-a-kg excise hike.
Meanwhile, the Indian Sugar Mills Association said production for the current marketing year that started in October had increased 2.7 per cent to 165.9 lakh tonnes till February 15.
“The country has produced 165.9 lakh tonnes of sugar up to February 15, 2013. This is about 2.70 per cent more than the same period last year,” it said.
The increased output has been attributed to higher sugarcane crushing and better recovery.