Ministerial panel recommends bail out package to the sugar industry including financial assistance to sugar cane farmers

An informal group of ministers, headed by Agriculture Minister Sharad Pawar recommended a number of incentives to cash-starved sugar mills including financial package to pay cane farmers. 

Why the need for a financial package for sugar mills ?

Owing to an increase in prices of fuel and fertilizer, farmers are insisting that mills pay Rs.280- Rs.300 per quintal for sugarcane. But millers hold that they can afford to pay only Rs.225 per quintal.
At present, sugar industry is facing a financial crisis due to higher cost of production and decline in the prices of sugar. This has led to 3400 crore rupees cane arrears from 2012-13 during the marketing year that ended in September 2013. Thus, owing to liquidity crunch, the sugar mills demanded interest-free loans for working capital requirement, hike in import duty, export subsidies among others. This financial package will allow millers to pay money they owe to the farmers.

Recommendations of the Panel headed by Agriculture Minister Sharad Pawar:

To ensure timely payments to cane growers, the PM-constituted panel recommended loan recasting for mills as per the RBI norms, incentives for production for raw sugar of up to 4 million tonnes and setting up of buffer stock besides doubling ethanol-blending in petrol to 10%.

• The bailout includes 7200 crore rupees at 12 percent interest rate to sugar mills by the banks to pay off the arrears of the sugarcane growers.
• The 12% interest on the financial support on the loan will be paid by Government of India (GoI) and Sugar Development Fund (SDF). The GoI will pay 5% of the loan, while the 7% will be paid by the SDF. This makes the loan amount free of interest for the sugar mills.
• The mills will have to repay loans in 5 years, but can get a moratorium on repayment in the first two years.
• To increase import duty on sugar (but at present there is no hike in import duty).
• An inter-departmental panel will be set up to coordinate with oil marketing companies and sugar mills for ethanol blending.

Note:India is the second biggest sugar producer in the world after Brazil. Maharashtra and Uttar Pradesh are the top sugar producing state of India.

Month: Current Affairs - December, 2013