The government has decided to extend interest-free loans of Rs 6,600 crore to cash-starved sugar mills to make payments to cane farmers. This development is definitely a welcome move for the industry as sugar millers, who are reeling under the impact of high cane costs amidst a bearish trend in sweetener prices. These millers are currently saddled with the payment arrears for last season estimated at Rs 3,400 crore as dues for the current season have started building up with the pick-up in cane crushing.
Going by the proposal moved by the Ministry of Food, the Cabinet Committee on Economic Affairs (CCEA), in its meeting on Thursday, allowed an interest subvention of up to 12% on the loans, which will be coming from the Sugar Development Fund and can be repaid in five years with a moratorium of two years. Further, the entire interest burden, estimated at Rs 2,750 crore over the next five years, will be borne by the government.
The food ministry proposal before the CCEA was based on the recommendations of the informal group of ministers, which was set up by the Prime Minister under the chairmanship of agriculture minister Sharad Pawar to address the industry's cash crunch. However, the loan amount which has been approved, is lower than the Rs 7,200 crore recommended by an informal Group of Ministers (GoM). Nevertheless, the ministry had also originally proposed that 7% of the interest burden would come from the Sugar Development Fund and the rest from the exchequer, which the CCEA revised.
As per CCEA’s decision, the loans will be provided by banks to sugar mills exclusively for making payments to sugarcane farmers, including arrears. However, as per the condition laid down earlier, the loans will be equivalent to the excise duty paid by the mills in the past three years. In another relief for the sugar industry, the CCEA also approved the exports of sugar without any quantitative restrictions.
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