Sugar sold through ration shops costs Rs 13.50 per kg. The government sells 27 lakh tonnes of sugar every year to poor through public distribution system (PDS). The Food Ministry's note to the CCEA does not recommend any specific amount of hike in price and has left that decision to the panel headed by Prime Minister Manmohan Singh, sources with direct knowledge of the development said.
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, sources said.
For sugar sold at every rupee lower than this threshold, the government will have to incur a subsidy of Rs 270 crore a year, they added. The retail issue price of levy sugar under the PDS has been fixed at Rs 13.50 per kg with effect from Mar 1, 2002.
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. It also incurred some transportation cost on top of it. 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. The country's annual sugar demand is 22 million tonnes. Mills are estimated to have produced 26 million tonnes of sugar in the 2011-12 marketing year (October-September).