Cabinet approves norms for Rs7,200-cr aid package for sugar industry

The Cabinet Committee on Economic Affairs (CCEA) today approved the guidelines for financial assistance to the sugar industry for payment of cane price arrears.

A panel of ministers headed by Sharad Pawar had, early this month, recommended interest-free bank loans of Rs7,200 crore to bail out the sugar industry from its present liquidity crunch and help clear dues to sugarcane growers.

The union cabinet today gave its final approval to the proposal to provide interest subvention for financial assistance to the sugar industry for effecting cane price payments as per guidelines of the `Scheme for Extending Financial Assistance to Sugar Undertakings, 2013'.

The expenditure for the scheme will be met fully from the Sugar Development Fund (SDF).

The central government will provide an interest subvention up to 12 per cent, at a simple rate of interest, for the additional working capital loans to the sugar mills, equivalent to last three sugar seasons excise duty, cess and surcharge on sugar (including notional equivalence for exports or availed Cenvat), to be provided by the banks.

Sugar mills with overdue loans classified as non-performing assets (NPA) by the banks will also be eligible for the loans provided the concerned state governments give guarantee for their new loans.

The interest subvention would be for a total loan duration of five years, including a two-year moratorium period. No interest subvention will be provided for the period of default in the principal repayments.

The loans would be meant exclusively for effecting cane price payments by the sugar mills.

Prime Minister Manmohan Singh had set up the panel to address the problem of rising cane price arrears that mills owed sugar cane farmers.

Sugar mills across the country are saddled with Rs3,400 crore dues to farmers even as state governments continue to hike cane prices year-after-year.

The panel also recommended a doubling of the level of mandatory ethanol blending with petrol to 10 per cent and additional incentives to encourage mills to produce raw sugar for exports.

After factoring in all the benefits of the interest-free loans and the Rs11 per quintal incentive announced by the Uttar Pradesh government, there would still be a Rs31.75 per quintal gap between viable price of cane and state-advised price (SAP), say industry sources.

The UP government had, earlier this month, announced a waiver of entry tax, purchase tax and society commission, which together account for Rs11 per quintal or 3.9 per cent of cane value in the state.

Sugar mills in Uttar Pradesh, the country's top sugar producing state, expect their losses due to higher cane prices to rise to Rs4,000 crore in the current marketing year from Rs3,000 crore in the 2012-13 sugar marketing year.

India, the world's second-biggest sugar producer after Brazil, is estimated to produce 24.4 million tonnes of the sweetener in the 2013-14 marketing year (October-September), sufficient to meet the domestic demand of 23.5 million tonnes.