- a In 1963-64, the government resumed full control i.e. no free market sales were permitted.

- In August 1967, the government reintroduced a system of partial controls which, except for a few years and with variations, has been in place ever since. Under this system a fixed percentage of the sugar produced by each mill (initially 60 percent ) is acquired by the Government at fixed prices and the balance -subject to monthly release controls-is allowed to be sold on the free market. The sugar purchased by the government is distributed by the Food Corporation of India ( FCI ) to domestic consumers through the public distribution system against ration cards. This portion is called _levy sugar_ 13 and the fixed prices at which it is purchased are called _levy prices._ Since 1967 the ratio of free sale sugar has been varied as shown in Annex 7. In 1972 and 1978 the controls were abandoned and all the mill sugar produced was allowed to be sold on the free market (free sale ratio equals 1.00). By contrast in 1981 all mill sugar was acquired by the government (free sale ratio equals 0.00). In most other years, the free sale ratio has varied from 0.30 to 0.60, but on average the ratio has been higher since 1987. In 1995 it was 0.60. Since the return from sugar milling depends on both sales at the free market price and sales at the lower levy price, in estimating nominal protection (see discussion below) we have used an average price weighted by the proportions sold at free market and levy prices.

While the system of controls described above applies to established sugar mills, in the 1970s the government decided to give extra incentives to new sugar mills and to expansion investments in existing mills. The basic principle adopted was to subsidize new investment by, for a specified number of years, increasing the allowable free sale ratio of the sugar produced, and by giving rebates of excise taxes. The schemes to implement this policy have been frequently varied, but have remained "cost plus " in nature, in that they give higher subsidies in the form of higher plant-specific free sale ratios to mills in areas with lower sugar yields and higher production costs. The higher free sale ratios and reduced excise taxes of such mills mean that, if they were measured, their nominal protection and other incentive indicators would be higher than the averages we have calculated, and in addition would raise the averages themselves. However to do this would be a very large and complex empirical task, which we have not attempted.

# _Pricing Policies_

The Agricultural Price Commission (APC), later renamed Commission for Agricultural Costs and Prices (CACP) was set up in 1965 to advise the government on the pricing policies for agricultural commodities, including sugar and sugarcane. As regards _sugarcane,_ based on surveys of farm production costs, the CACP each year recommends minimum prices for each region. Based on these recommendations, the Union government announces statutory minimum prices (SMPs) which are usually lower than or equal to the CACP recommended prices. However each state government also announce its own minimum price, known as the state advised prices (SAP). These prices are usually much higher than the SMPs, and therefore become the effective minimum prices which sugar mills are obliged to pay for sugarcane. The 13 As with other commodities distributed by fair price shops under the PDS, the quota for rationed sugar is based on the number of family members in a household. Ration cards are issued to all Indian households regardless of income.

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