Sugar mills likely to get Rs 7,200 cr bailout package from govt

New Delhi: Government is likely to take a final call before this Christmas on a bailout package for the sugar industry that includes Rs 7,200 crore of interest-free bank loans to pay dues to sugarcane growers, Food Minister K VThomas said today.

He also expressed concern about the slump in domestic sugar prices that has not created cash flow and profitability issues for sugar mills but led to pendency of cane payments to growers.

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Last week, the PM-constituted ministerial panel headed by Agriculture Minister Sharad Pawar recommended relief measures to address the cash crunch faced by sugar mills unable to pay higher cane prices this season. Mills are saddled with dues of Rs 3,400 crore to growers.

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Addressing the 79th annual general meeting of Indian Sugar Mills Association (ISMA), Thomas said that very soon, the Food Department would be moving towards giving immediate relief to the industry as per the panel’s recommendations.

Asked when the government would take a final call on proposed relief measures, he said: “Most probably before Christmas…We are doing it fast.”

“Our Department is preparing a note. Before taking (it) to the Cabinet, we will again discuss in the meeting of the informal group of ministries (GoM),” he told reporters on the sidelines of an ISMA event.

Thomas said that it has been decided that loans worth Rs 7,200 crore would be provided by banks to the sugar industry exclusively for payment of sugarcane growers.

Banks will lend equivalent to the excise duty paid by mills in the last three years, while the entire interest of 12 percent would be borne partly by the Government of India and the Sugar Development Fund, he said.

Mills would have to repay the loans in five years and can avail of a moratorium on repayment in the first two years, he added.

Besides interest free loans, the panel had also recommended recasting of loans taken by mills as per Reserve Bank of India norms, incentives to produce 4 million tonnes of raw sugar and setting up of buffer stock, besides doubling

ethanol-blending in petrol to 10 percent.

The sugar industry is facing financial problems due to higher cost of production and lower sugar prices.

Adding to the millers’ financial woes, Thomas said that export of surplus sugar from India has become a difficult proposition due to simultaneous glut in sugar production globally.

To overcome this situation, the Food Minister said the government is considering creating a sugar price stabilisation fund to curb the long-term volatility in sugar prices.

He also suggested that the industry diversify its product base. “They have to produce what the market wants. For instance, the export market does not want our white sugar. The demand is for raw sugar,” he said, adding that production of fuel ethanol is another potential area.

Despite steps taken to facilitate ethanol production, the Minister agreed that there are procurement issues between the sugar mills and oil marketing companies but assured mills that the government is trying to settle them soon.

Noting that reducing the cost of sugar production by cutting remuneration to farmers is not going to be sustainable, Thomas suggested that the long-term solution lies in increasing the productivity of sugarcane and the industryshould take a lead role in this area.

On adoption of sugar price sharing formula suggested by the Rangarajan committee report, Thomas said the Karnataka government has set up a board to advise and recommend cane prices. Uttar Pradesh has also constituted a committee with a similar mandate, while Maharashtra government is consideringto set up a board soon.

Stating that 2013 has been a watershed year for the sugar industry, Thomas said that the government has withdrawn major regulatory controls on sugar sale and laid the foundations for its further liberation.

ISMA President M Srinivasan said the industry body has not achieved “much success” even as it has engaged with state governments to impress upon the need to link sugarcane price with revenue realisation of sugar prices."

“If the state governments continue to fix irrationally an unviable sugarcane price, we feel that we will be forced out of this business very soon,” he said.

With the decontrolling sales side of the sugar sector, the government did not address the sugarcane pricing policy and this has left the industry in conflict with farmers and state governments, he said.

Srinivasan also said that the country needs to export 4 million tonnes in the next couple of years to ensure that the surplus sugar stock is brought down to reasonable levels.

He also demanded that the government keep duty-free import authorisation scheme in abeyance for two years or allow sugar imports after two years and not earlier.

India, the world’s second biggest producer, is estimated to produce 24.1 million tonnes in the 2013-14 marketing year (October-September), higher than the domestic demand of 23.5 million tonnes.

PTI