The Rangarajan Committee on Friday recommended deregulation of the sugar sector, the only remaining industry that continues to be controlled by the government, by giving freedom to mills to sell sugar in the open market.

It has also suggested doing away with the system of levy sugar, under which the mills are required to sell 10 per cent of their production to the government at below market price for running ration shops.

While other sectors of the economy has been freed, the sugar industry continues to remain under the government control, right from the level of production to distribution.

The Centre fixes the quantity of sugar that mills can sell in the open market and ration shops.

"Rationalisation of sugarcane pricing and liberalisation of sugar trade need to be introduced over a two to three year period, in a calibrated and phased manner. However, levy sugar obligation and administrative control on non-levy sugar need to be dispensed with immediately," the Committee, headed by Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan said in a report.

Levy sugar is meant for distribution in the ration shops, while non-levy sugar is for sale in the open market.

The report was submitted to the Prime Minister today. In January, the Prime Minister had set up an expert committee to examine issues related to decontrolling the sugar sector.

"Markets in almost all sectors in India are constantly matching anticipated demands with supply. There is no particular reason why sugar market would not be able to do this," the Committee said.

The mechanism of regulated release of non-levy sugar imposes costs directly on mills (and hence indirectly on farmers) on account of inventory accumulation, inability to plan cash flows, the committee said, and advocated that "since this mechanism is not serving any useful purpose, it may be dispensed with".