Thursday, September 04, 2008

Rip the control freaks; they ran out of arguments

Nice argument in Business Standard editorial seeking sugar decontrol.
Why should the cabinet put on hold the proposal to free up sugar supplies by the food and consumer affairs ministry? What are its concerns?

Do they fear rise in sugar prices fueling inflation that is already high? Think again. The 11 million ton carry over from last year’s record production covers 55% of our annual consumption of 20 million tons. Even if the acreage under cultivation drops, it’s absurd to assume that it would drop over 45% - especially at a time when sugar is turning a multi-use crop needed for production of ethanol and even power generation beyond just sugar and alcohol. Decontrol in fact, allows sugar mills to press more supplies from the buffer stock into the market that will help push the prices further down, not up.

Will decontrol make PDS sugar costlier because state governments will have to buy from open market when levy is abolished? Not at all - since the proposal recommends central government to compensate the state governments by subsidies that was so far being borne unjustly by the sugar producers instead of the government. It will also eliminate the arbitrary price determination by central /state governments that often doesn’t consider market realities and result in expensive litigation.

I add one more point. How long can governments mask economic realities? Prices crash during times of over production and will creep back up when there is a shortage. It happens with Gold, Steel, Cement, Paper and all commodities. Any attempt to artificially control prices will only lead to manipulation and corruption. Why have the illusion of control and not just let go? We had controlled petrol, diesel, fertilizers and sugar and still we got a double digit inflation. So why harp on to something that is fast running out of arguments?


No comments: