Government may consider hiking retail price of PDS sugar on Tuesday

NEW DELHI: The Cabinet Committee on Economic Affairs ( CCEA) is likely to consider on Tuesday a proposal to raise price of sugar sold through ration shops.

If approved, it would be the first hike in about a decade. Sugar sold through ration shops costs Rs 13.50 a kg. The government sells 27 lakh tonnes of sugar every year to the poor through public distribution system (PDS).

"CCEA, which was scheduled for tomorrow has now been postponed. It will now take place next week on Tuesday," a government official said.

The Food Ministry's note to the CCEA does not recommend any specific amount of hike in price of sugar and has left the decision to the panel headed by Prime Minister Manmohan Singh.

However, the ministry has stated that the government will not have to pay any subsidy on levy sugar if prices are raised to Rs 25.37 per kg. For sugar sold at every rupee lower than this threshold for supply under the PDS, the government will have to incur a subsidy of Rs 270 crore a year, sources added.

The retail issue price of levy sugar under the PDS was fixed at Rs 13.50 per kg with effect from March 1, 2002 and has remained unchanged since then.

In 2011-12 marketing year (October-September), the Food Ministry paid about Rs 19.50/kg to sugar mills for procuring sugar for sale through PDS.

Under the levy obligation, sugar mills are required to sell 10 per cent of their output to the government at below cost rates for supply to ration shops.

Mills supply levy sugar at 60 per cent of the cost of production, resulting in an annual industry loss of about Rs 2,500-3,000 crore.

Against the country's annual sugar demand of 22 million tonnes, mills are estimated to have produced 26 million tonne of sugar in the 2011-12 marketing year.