The central government is likely to reduce its controls in the sugar industry after a high powered panel recommends allowing sugar producers to sell their produce freely in the market and sharing 75 per cent of their profits with the sugarcane farmers.

Dr C Rangarajan, chairman of the prime minister's economic advisory council, headed the committee that suggested that state governments should buy sugar from the open market instead of making it mandatory for sugar mills to sell 10 percent of their produce to the government at a loss.

"The central government would continue to incur Rs 3,000 crore annual subsidy in selling sugar through the ration shops. The subsidy will be distributed among state governments and then they will fix the price of sugar as per their financial strength," Rangarajan said.

The committee recommends introduction of the rationalization of sugarcane pricing and liberalization of sugar trade over the coming two to three years in the country. The union food ministry will now move a cabinet note relating to the recommendations for approval before it can be implemented. The ministry will have to look at the reviews and suggestions from other ministries before deciding upon the matter.