Bail-out package coming in phases

The Centre on Thursday decided to extend a Rs. 6,600-crore interest-free loan to the cash-strapped sugar industry for payment of cane arrears to farmers. The loan can be paid back in five years with a moratorium of two years.

Approving the proposal moved by the Ministry of Food, the Cabinet Committee on Economic Affairs (CCEA), in its meeting on Thursday, okayed an interest subvention of up to 12 per cent on the loan which will come from the Sugar Development Fund.

The interest burden on Rs. 6,600 crore over a five-year period is estimated at Rs. 2,750 crore, Minister of State for Food K.V. Thomas told journalists after the meeting.

The subsidy will come from the Sugar Development Fund under the Ministry of Food.

The loan amount is lower than the Rs. 7,200 crore recommended by an informal Group of Ministers (GoM) headed by Agriculture Minister Sharad Pawar.

The informal GoM of which Finance Minister P. Chidambaram and Civil Aviation Minister Ajit Singh were members, went into the problem of working capital loans being faced by the sugar industry owing to surplus stocks and a decline of about Rs. 4 per kg in sugar prices.

Asked about the slashing of Rs. 600 crore in the loan amount, Mr. Thomas said, “The loan amount is being worked out. It may be between Rs. 6,600 and Rs. 7,000 crore.”

He said the CCEA will discuss in the next Cabinet meeting the other recommendations made by the informal GoM relating to incentives for production of 4 million tonnes of raw sugar, restructuring of loans as per the Reserve Bank of India guidelines and doubling of ethanol blending in petrol to 10 per cent.

A panel of concerned ministers will go into the proposals.

For now, the creation of a buffer stock of sugar on government account has been ruled out “as there is no co-relation between buffer and procurement.”

Surplus sugar stocks in the last three sugar seasons has led to accumulated stocks of 91.09 lakh tonnes on October 1, while sugar output in 2013-14 is expected to be 241 lakh tonnes against domestic demand of 235 lakh tonnes.

Cane price arrears are highest in Uttarakhand and Uttar Pradesh where farmers had gone on an agitation on cane pricing and payment of arrears.

Hailing the CCEA decision as “a wonderful gesture”, Director-General of Indian Sugar Mills Association Abhinash Verma said the loans will help industry pay sugarcane growers and clear past arrears to the tune of about Rs. 3,000 crore. “It will help the industry reduce around Rs. 500 crore annual interest burden in the next five years.”

The industry was looking forward to government help to reduce surplus stocks and steps to rationalise cane pricing policy.

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