Damage control: Government cheapens loans to sugar mills by 3 per cent

As sugar prices in India soar to unprecedented levels, the union government has decided lend sugarcane mills money at the heavily reduced rate of 4 per cent, expecting that the benefit will be passed on to farmers for purchase of inputs like seeds, fertilisers, and pesticides.

The loans, to be made through the Sugar Development Fund, would be disbursed to sugar mills at the new rate which is down from 7 per cent so far. The mills are expected to pass on the benefit, in cash or kind, to growers in their 'command area' by 31 March next year, according to a food ministry release in New Delhi.

The factories would be required to repay the loan along with interest over a total period of four years from the date of disbursement in four equal annual instalments, the release added.

The government expects the move to benefit sugarcane growers, particularly in Maharashtra and Uttar Pradesh, the country's two top sugar producing states. However, most experts feel that this is yet another ad hoc measure that fails to address the basic problems facing the industry.

Agriculture minister Sharad Pawar has been meeting sugar producers over the past few days to control the prices of this politically sensitive commodity. Retail prices of sugar have soared to around Rs35 a kg in the country. This is even more worrying for the authorities because the demand is bound to rise during the upcoming Diwali season.

Most analysts blame the current situation on the government's short-sighted misreading of the demand-supply equation. For example, sugar mills in Karnataka have asked the state government to stop diversion of sugarcane from their fields to neighbouring Maharashtra.