PM's panel recommends sops for loss-making sugar industry

In an effort to bail out the loss-making sugar industry, the union government may shortly announce several incentives, including an interest subvention of 12 per cent on bank loans worth Rs 7,200 crore, to the mill owners. The money has to be used to clear sugarcane arrears to farmers.

A group of ministers constituted by Prime Minister Manmohan Singh on Friday recommended loan recast for the sugar mills according to Reserve Bank of India (RBI) norms, sops for raw sugar production of four million tonnes, setting up a sugar buffer stock and doubling the blend of ethanol in petrol to 10 per cent.

It did not, however, take any decision on raising the import duty on sugar, which is a major concern of the millers.

The market reacted positively to the announcements with share prices of sugar mills rising. At the Bombay Stock Exchange, Bajaj Hindusthan gained 5.46 per cent to close at Rs 14.69 while Renuka Sugars gained 4.27 per cent to end the day at Rs 22. Most sugar stocks gained 2 to 5 per cent.  

Agriculture Minister Sharad Pawar, who headed the group, said banks would give loans worth Rs 7,200 crore to the sugar millers at 12 per cent interest rate, the interest being entirely paid by the government.

"Total interest subvention will be 12 per cent. Of that, 7 per cent will be paid from the Sugar Development Fund and 5 per cent by the government", Pawar said.

Mills will get a five year period to repay the loans. They can also avail a moratorium in the initial two years.

A final call on the proposals will be taken shortly by the Union Cabinet. Finance Minister P. Chidambaram, Petroleum Minister Veerappa Moily, Food Minister K.V. Thomas and Civil Aviation Minister Ajit Singh are other members of the group.

Friday's meeting was also attended by chief ministers of the top sugar producing states like Maharashtra, Uttar Pradesh and Karnataka.

Welcoming the proposal, Abinash Verma, Director General of Indian Sugar Mills Association, said: "The initiatives will help the sugar industry face the financial crisis it is going through. It will help to clear arrears a of farmers and also help them venture into production of the new product, raw sugar".

He, however, stressed that for the long term viability of sugar mills, the revenue sharing formula for cane pricing should be implemented to rationalise the cane pricing mechanism and make it more transparent.

The sugar industry has been going through a crisis due to falling sugar prices on a sustained surplus and rising sugarcane prices that has reduced the ability of the industry to make payments to the farmers. At the close of the 2012/13 sugar season in September, the sugar industry owed Rs 3,400 crore to farmers, of which Rs 2,300 crore alone was in Uttar Pradesh.