Sugar mills to get juice back with Rs 4,400 cr interest-free loan

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The government has decided to offer fresh zero-interest loans worth Rs 4,400 crore to sugar industry to liquidate arrears to sugarcane farmers.

The government has also approved increasing import duty on sugar to 40 per cent from the prevailing 15 per cent. It has also decided to extend subsidy on sugar exports till September.

The loans can be availed by sugar mills over the next two years to liquidate unpaid dues to growers totalling Rs 11,500 crore. The loan is being provided at the behest of prime minister Narendra Modi and should help the BJP consolidate its political gains in major sugar producing states like Maharashtra where elections to the state legislature are due later this year, and in Uttar Pradesh where the party won a handsome victory in the May general election.

This is the same constituency that the erstwhile UPA government had sought to woo last December ahead of the general election when it put together a package for interest free loans to sugar mills worth Rs 6,600 crore. Of this, the sugar industry has reportedly availed of loans worth Rs 4,000 crore.

Besides Uttar Pradesh and Maharashtra, farmers in Karnataka, Tamil Nadu and Andhra Pradesh too will gain substantially from the fresh loan sanctioned by the government.

The earlier loan was made available to sugar mills on the basis of excise duties they paid for the past three years. Now, the scheme has been extended to five years.

Besides consolidating political gains, the scheme will raise cash availability to sugar mills that have been complaining of a liquidity crunch that has resulted to mounting payment arrears to cane farmers.

Additional funds would be released to industry if they clear their dues to farmers without diverting cash for other uses. To avail the interest-free loans, sugar mills will also have to meet the eligibility norms set by state-run banks.

The scheme would provide over Rs 1,200 crore to sugar mills in Uttar Pradesh alone, though they had sought interest-free loans of more than Rs 2,200 crore.

Several sick units that have been unable to put their house in order and do not meet the lending norms will continue to remain shut across several states.

Briefing newsmen, food minister Ram Vilas Paswan said the four decisions were aimed at reviving the sugar industry and putting some money in the hands of farmers.

Prime minister’s principal secretary Nripendra Misra, cabinet secretary Ajit Kumar Seth, food minister Ramvilas Paswan, transport minister Nitin Gadkari and commerce minister Nirmala Sitharaman were among those who finalised the package.

The government also decided to permit blending petrol with up to 5 per cent ethanol, which is a byproduct of sugar manufacturing. The target is to achieve 10 per cent blending as practised globally.

The hike in import duty to 40 per cent is a deterrent against future imports, as India does not import much sugar at present; India itself is a big player in world markets. Right now, there is a glut in domestic market with surplus stocks worth over 20 lakh tonnes.

Industry analysts say that sugar mills may use the cover of higher import duty to hike retail prices by Rs 2 per from prevailing Rs 28–31 per kg, in order generate profits, though actual imports are almost negligible. The sugar industry hailed the decision and stock prices of key sugar companies saw an upward movement.

“This would definitely improve market sentiments, domestic sugar prices and better buying by the traders and wholesalers,” said Indian sugar mills’ association (Isma) director general Avinash Verma.

Paswan said the package would become operative immediately provided mills gave an undertaking that the fresh funds would be used to clear farmers’ dues.

However, he also clarified that some decisions taken on Monday may require ratification by the union cabinet or cabinet committee on economic affairs (CCEA).

Paswan also pointed to infirmities in fixing the sugarcane prices in different states. He called for a ‘holistic view’ on pricing sugarcane.

Sugar mills owe almost Rs 11,000 crore to farmers across the country, with Uttar Pradesh alone accounting for Rs 7,200 crore. Liquidity crunch with the sugar mills has been attributed to low prices coupled with falling demand.

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