Pawar panel recommends Rs7,200-cr interest-free loans to sugar mills to clear cane dues

A panel of ministers headed by Sharad Pawar on Friday 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.

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 has recommended interest-free loans to sugar mills with an overall limit of Rs7,200 crore, mainly for clearing cane arrears. The loans will have a moratorium of two years for repayment.

''Total interest subvention will be 12 per cent. Of that, 7 per cent will be from the sugar development fund, while 5 per cent from the government of India,'' Pawar said after Friday's meeting. Mills will have to repay loans in five years, but can get a moratorium on repayment in the first two years, Pawar said, adding that the cabinet will take a final decision on the issue in the next two weeks.

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.

Although sugar mills welcomed the proposals, many feel that the package would be too small for meeting the additional burden created by the successive hikes in cane prices announced by state governments.

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 last week 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.

Pawar, however, said any rescheduling of existing loans would have to be as per Reserve Bank of India guidelines.

The panel is also looking at ways of compensating sugar mills for losses on the production of raw sugar, of up to 4 million tonnes a year, although within the WTO limits, he added.

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.

Even as the gap between state advised prices of sugarcanes and prices set by the Commission for Agricultural Costs and Prices (CACP) continue to widen, the burden of cane procurement is increasingly telling on viability of sugar mills.

The industry is pressing for bringing down cane prices to a more realistic Rs225 per quintal based on the Rangarajan panel formula.

The industry, however, is not too enthusiastic about the move to double the mandatory level of ethanol blending with petrol.

Raising the blending level, however, will have an indirect impact on sugar prices as mills would be encouraged to produce more ethanol out of cane by using the sugar-heavy molasses, instead of sugar.

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.

Maharashtra and Uttar Pradesh are the country's top two sugar-producing states, followed by Tamil Nadu and Karnataka.