The Centre on Wednesday decided to give a direct production subsidy of Rs. 4.50 a quintal to cane growers for 2015-16 towards sugarcane arrears due from cash-strapped mills. This will cost the exchequer an estimated Rs. 1,147 crore.
Millers owe about Rs. 6,500 crore to sugarcane growers for previous years.
The subsidy will be paid on behalf of the millers and will be adjusted against the fair and remunerative price (FRP or minimum price) of Rs. 230 a quintal payable to farmers and will include payment of arrears for previous years. The mills have to pay sugarcane growers against the cane bought from them for crushing.
The decision was taken by the Cabinet Committee on Economic Affairs chaired by Prime Minister Narendra Modi.
Announcing the government decision, Power and Coal Minister Piyush Goyal said that to reduce arrears and support cane growers, the government had taken out a scheme compliant with World Trade Organisation norms. Production subsidy will be given to offset the cost of cane and pay farmers without delay.
“The proposal will entail giving production subsidy directly to cane growers at Rs. 4.50 a quintal of cane crushed for the production of sugar. Eventually, this will help liquidate some of the sugar stocks and meet the export target at least to the extent of 80 per cent,” he said adding that the subsidy would entail a benefit of about Rs. 1,147 crore directly to cane farmers.
The Indian Sugar Mills Association welcomed the move saying the government had shown its willingness to partially bear the FRP [that the industry is finding it difficult to pay due to liquidity crunch].
“The concept of government bridging the gap — at least partially — between what the sugar mills pay to farmers as per their revenue realisation and what the government wants to give to farmers will help reduce cane price arrears,’’ the association said in a statement.
It, however, added that “at current low prices”, the losses will be more than Rs. 1,147 crore and “if sugar prices do not improve to cover costs during the season, then the industry and farmers may seek further help from the government.” Sugar production this season is expected to be around 27 million tonnes, which is five per cent lower than last year’s.
Sustained surpluses of sugarcane production against domestic requirement in the past five years had led to subdued sugar prices, telling upon the liquidity position of industry and building up care arrears. On April 15, cane arrears stood at Rs. 21,000 crore.
To clear cane dues, the Centre had earlier provided a soft loan of Rs. 4,047 crore to the industry, entailing interest subvention to the extent of Rs. 600 crore, besides one year moratorium on payment of loan. The government also increased by Rs. 1,000 per tonne the export incentive on raw sugar in 2014-15 for export of 14 lakh tonnes of raw sugar.
To encourage diversification, the government fixed remunerative prices for ethanol supplied for blending with petrol (Rs.42 a litre) and scaled up the blending targets under the ethanol blending program (EBP) to 10 per cent from five.
As an incentive for ethanol supplies, the Centre waived excise duty on ethanol in the current sugar season making for extra revenue realization of Rs. 5 per litre. As a result, supplies of 103 crore litre of ethanol was contracted by Oil Marketing Companies which is a substantial increase compared to 32 crore litre in the previous sugar season, official sources said.
