MUMBAI: The commodity market is quietly anticipating a big bang move in sugar, one of the most politically sensitive items. Traders are betting that come September sugar trade in the country would be free from the clutches of the government. If the present system of monthly release mechanism is withdrawn, futures trading in sugar is poised to get a leg up. "The government has accepted the Tuteja committee recommendations for reforms in sugar market, in principle. A notification towards the dismantling of sugar release mechanism may come soon," said HA Badi, MD, Gujarat State Federation of Sugar Co-operative Factories. There is a distinct feeling that unlike in April '03, the government this time may go ahead with the decontrol.
Recently, sugar has been taken out of the list of essential commodities and government does not directly interfere in sugar prices and its movement in the spot market. But monthly quantity release mechanism sways market sentiments. Since futures prices follow spot prices, futures price movements also influence the government's decision on the month-wise sugar release.
Widespread buyers and sellers, along with a large cash market worth Rs 25,000 crore, are ideal for futures trading. Under the circumstances trade will shoot with the proposed decontrol. Internationally sugar is a volatile commodity.
Earlier in order to unshackle the industry from government control, the Tuteja committee has recommended scrapping of the monthly sugar release mechanism. The committee proposed the same may come into effect from September-October '05, trade circles say.
The exercise began in '00. The government had then reduced the compulsory levy obligation from 40% to 30%. It further came down in March '02. Though in September '02, the central government decided to dispense with the release mechanism from April '03, it was postponed.
The PDS system has also been restructured. Only people living below the poverty line gets sugar, barring some regions. The sugar export promotion has also been modified.
Though the release mechanism may be withdrawn after 5 months, the sugar market will not be entirely free from domestic control. The committee has recommended the continuation of the Statutory Minimum Support mechanism. It goes against the principle of free markets, but farmers will get a double-edged protection: not only the benefit of the government support, but also a cover the physical market risks in the commodity exchanges.
Market sources said that 90% of the sugar produced is allowed to be sold by sugar mills as a free sale quota and 10% is allowed to be sold as levy to the state government or their nominees at a pre-determined price. India has more than 550 mills, majority of them are under co-operatives.
-Arindam Saha
Economic Times
Date: 10-5-2005
