Finance Minister Arun Jaitley may not offer Rs.18.50 per kg subsidy for purchase of sugar to states for selling at a subsidised rate via ration shops in his February 1 Budget and save about Rs.4,500 crore.
The Centre's contention is that there is no demarcation for BPL families in the new Food Law and there are apprehensions that state governments may divert subsidised sugar, which explains the current line of thinking, sources said.
At present, the scheme has a target of 40 crore beneficiaries of BPL (below poverty line) families. About 2.7 million tonnes of sugar per annum are required for PDS sale.
As per the existing scheme, states purchase sugar to be supplied through the public distribution system (PDS), popularly known as ration shops, from the open market at wholesale rates and sell at a subsidised rate of Rs.13.50 per kg. The states get subsidy at Rs.18.50 per kg from the central government.
According to sources, there are indications from the finance ministry that the existing sugar subsidy scheme could be discontinued from the next fiscal.
Meanwhile, Food Minister Ram Vilas Paswan has written to Jaitley demanding not to discontinue the scheme entirely and proposed continuance of it for at least Antyodaya Anna Yojana (AAY) families, the poorest of the poor segment.
The food ministry has already sounded out states that the central government may withdraw subsidy on sugar from next fiscal and they would have to bear the entire cost of sugar for selling at a cheaper rate via ration shops, the sources said.
The country's sugar production is estimated to drop to 22.5 million tonnes for the second straight year in 2016-17, which is lower than the domestic requirement of 25 million tonnes. But there is previous year's stock to meet the demand gap.