Indian Government decontrols sugar: 7 things you need to know

Nasrin Sultana, Riken Mehta
Moneycontrol.com

Cabinet Committee on Economic Affairs (CCEA) on Thursday finally decided to decontrol sugar with certain riders. The sugar industry was the only industry left under the government control. It is learnt that the decontrol is largely in line with recommendations made by the Rangarajan committee . 

What does decontrol mean?

1. Decontrol means no government control. It will no longer force mills to sell sugar to the government at a discount and wont put a limit on the amount that they can sell in the open market.

2. No levy obligation on sugar mills for 2 years. Levy sugar is the amount of sugar set aside from the total production for Public Distribution System (PDS). In levy sugar system, millers were required to contribute 10 percent of their output to the Centre for running ration shops at cheaper rate. This costed the industry Rs 3,000 crore a year, an amount sugar industry will now be able to save.

3. Release order mechanism by which government directed sugar companies as to when, how much to release sugar now goes away.

4. The government will buy sugar from the open market at market rates and subsidise it to PDS. The government will pay the difference between ex-mill and PDS price. Cabinet fixed the price of levy sugar at Rs 13.50 a kg in 2002 and it was never changed since then. 

5. The government will bear Rs 5300 crore PDS sugar subsidy.

6. No hike in excise duty on sugar. Currently it is Rs 95 per quintal

7. Ex-mill sugar price will be capped at Rs 32 per kg for PDS

The government maintained that the decision will not lead to any rise in retail prices of sugar. However, it would double the government's subsidy burden to Rs 5,300 crore annually from about Rs 2,600 crore.

PSU stock that rallied 795% in 5 months on 160-share volume

Riken Mehta

Moneycontrol.com

Shares of barely-traded PSU, India Tourism Development Corporation have rallied 795% over the last five months, on negligible volumes. On Monday, trading in the stock has been frozen at the upper end of the 5% intra-day circuit filter at Rs 981.40

The low trading volumes is not surprising, given the highly concentrated holdings in the stock. The government holds 92.11% in the company, Indian Hotels owns 7.87% and the rest is held by individual investors.

It is surprising why buyers have been bidding up the price over the last six months when the company does not have the fundamentals to justify the high valuation.

Its book value is Rs 36, and the company’s revenues have remained stagnant over the last five years.

The sharp rise on low trading volumes also indicates there could be a deliberate attempt to ramp up the stock price.

The stock is now trading at an extravagant price to earning ratio of 470 times its 2011-12 earnings. The company is debt free, but has contingent liabilities of Rs 476 crore.