The Centre on Wednesday approved a Rs. 6,000 crore interest-free loan to sugar mills to enable them to clear cane arrears payable to farmers.
This is the >third such package extended to the industry since December 2013. Cane arrears in the current sugar season (October 2014-September 2015) stood at Rs. 21,000 crore of which over Rs. 9,000 crore is due from mills in Uttar Pradesh.
The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, agreed to provide a one year moratorium on repayment of this loan. It also decided to bear the interest subvention cost to the extent of Rs. 600 crore for the said period.
"We have taken this decision in the interest of farmers," Union Minister for Road Transport and Highways Nitin Gadkari told journalists after the cabinet meeting.
Direct payment to farmers
To ensure that farmers are paid their dues expeditiously, the Government has mandated that banks will obtain from the sugar mills the list of farmers and the dues payable to them so that the arrears are directly transferred to the bank account of growers on behalf of the mills. Subsequent balance, if any, will be credited into the mills account. This is a departure from the past when the mills were asked to clear farmers’ dues.
The approved soft loans will be provided to those units which clear at least 50 per cent of their outstanding arrears before June 30, 2015.
Why huge cane arrears?
Cane arrears built up on account of the difference between the Fair and Remunerative price of sugarcane fixed by the Centre and the higher State Advised Price fixed by some of the state governments, official sources said.
Besides, higher production than domestic consumption in the last four years has led to subdued sugar prices. Similar situation prevails in international market. This has stressed the liquidity position of the industry leading to a build up of cane price arrears.
Centre's intervention
Last year, Centre had taken several steps to resolve the issue, such as >raising sugar import duty to 40 per cent from 15, increasing >incentives on raw sugar exports , raising mandatory ethanol blending to five per cent from two per cent, and fixing a higher price for ethanol.
The Centre also decided to waive the excise duty on ethanol in the next sugar season to further incentivise ethanol supplies for the blending programme. This will enhance the ex-mill price of ethanol and help improve the liquidity of the industry, sources said.
The government had initially extended an interest-free loan of Rs 6600 crore to the industry in December 2013, followed by another similar package to the tune of Rs. 4400 crore in June 2014. Still, owing to high production of sugar, the industry remained cash strapped.
The major sugar producing states include Uttar Pradesh, Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh, Telangana, Bihar, Gujarat, Haryana, Uttarakhand and Punjab.
