The sugarcane fiasco in Delhi, cheered on by the entire political class, is a great lesson in what happens when the state refuses to allow market forces to function. Since the latter is an endemic condition in this great country, egged on by many of us, we’d like to dwell on what has happened. In India, the price, production and supply of sugar are all subject to state fiat, for no reason that makes rational economic sense. Unless, of course, you are a doctrinaire socialist. Factories are required to hand over a tenth of the sugar they make to the central government, at a price dictated by the latter, to supply ration shops and the government’s reserve. The rest is supposedly ‘free sale’. It is anything but, as the government also decides how much each mill can sell each month. Nor may farmers sell to any mill they wish; that is also a state allocation. And, what a mill must pay is also state-dictated. Twice over: the central government first declares a minimum support price, after which the state government notifies a much higher ‘state advised price’ (SAP), which mills must pay to cane growers.
Since these prices have little connection to market reality, each round of payment is also a prolonged political issue. Recently, the Supreme Court agreed with mill owners that Rs 30,000 crore in arrear payments had to be made good by the governments, not the mills. The state is the only umpire that makes up the rules as the game proceeds, so out came an ordinance to negate the SC ruling. Alongside, someone in the Centre decided to slip in some room for rationality: if a state government put its SAP higher than the Centre’s minimum, it would have to pay the difference, not the Centre or the mill owners. The result was that every political party, including parts of the ruling group, rose in revolt, bringing farmers along to lay siege to Delhi. For, state governments lack the money to pay anything close to this. Retreat was immediate; status quo ante has been restored. In return, all parties have assured support for a bill to nullify the SC finding, with restrospective effect. In sum, everyone and his uncle has looted the public treasury to please one group. Meaning your money and mine went to keep the politicians happy. Dare we dream of a campaign to free the sugar market?
