Scope for exploitation of consumers through speculation: a dynamic programming approach to the case of the Indian sugar industry

Abstract

The Government of India (G.O.I.) controls the quantity of sugar released into the domestic market on a monthly basis. This forms a part of the package of public policies affecting the development of the Indian sugar industry, which includes protection from foreign competition, simultaneous existence of an open market for sugar and distribution of sugar at subsidized prices to consumers through the public distribution system (P.D.S.), minimum support prices for the farmers producing sugar-cane, and differential prices paid to sugar factories for the sugar taken over by G.O.I. for the P.D.S. Using a dynamic-programming approach, this paper describes a worst case analysis of the scope for the traders to exploit the consumers under the current policy of controls over releases into the domestic market. The results show the marginal importance of such controls in saving the consumers from the exploitation by traders. Secondly, on the basis of wider research done by the authors, it is concluded that the scope provided to the traders for the exploitation of consumers through the other policies of the package is of such a magnitude as to make the controls over the releases into the market a relatively insignificant policy intervention for protecting the consumers