The Cabinet Committee on Economic Affairs on Thursday decided to decontrol the Rs. 80,000 crore sugar industry.
Food Minister KV Thomas said the move will have no impact on open market prices. The government will bear subsidy for public distribution system sugar (PDS) sugar and the current PDS system on sugar will continue, he said. The government subsidy burden will be at Rs 5300 crore, the minister added.
The government will pay the difference between ex-mill price of Rs 32 and the PDS price of sugar.
"No levy obligation on sugar mills for two years," Mr Thomas said adding that there was no decision yet on excise duty hike.
States are free to buy sugar from open market for PDS, the minister said.
In October last year, a panel headed by Dr C Rangarajan, the Chairman of the Prime Minister's Economic Advisory Council, had recommended the removal of two control measures - the regulated release mechanism and the levy sugar obligation -- immediately and of other restrictions gradually.
At present, the sugar sector is controlled from production to distribution. Through the release mechanism, the Centre fixes the sugar quota that can be sold in the open market. Under the levy system, it asks mills to contribute 10 per cent of their output to run ration shops costing the industry Rs. 3,000 crore a year.
The government currently buys sugar from mills for about Rs. 20 per kg and sells to ration card holders for Rs. 13.50 per kg.
Under the decontrolled regime, the sugar requirement of states for the public distribution system (PDS) will be met through purchases from the open market and the states will be given a fixed subsidy based on their existing allocations.
With inputs from agencies