A 7,200-cr loan to bail out sugar mills

Facing intense heat from cane growers, the poll-bound government has proposed Rs. 7,200 crore interest-free loan to bail out sugar industry with an informal Group of Ministers (GoM) recommending it as part of other measures to assist farmers and mill owners.
The loan can be availed of by sugar mills to pay cane farmers. The proposal will be placed before the Cabinet which will take the final decision on it over the next two weeks.
However, it may take another two to three months when the farmers receive the payment for their fresh produce and arrears after the financial institutions disburse the loan. The payment to farmers is likely to be timed keeping in mind the dates of general elections.
The sugar industry is facing a financial crisis due to higher cost of production and dipping prices in domestic market. It led to cane arrears of Rs.3,400 crore from 2012-13 marketing year that ended September. The present arrear only in Uttar Pradesh is about Rs.2,400 crore.
The other measures, recommended by the GoM, include assistance for producing raw sugar up to 4 million tonnes, setting up buffer stock and increasing the share of ethanol-blending in petrol from existing 5% to 10%.
The GoM, headed by agriculture minister Sharad Pawar, however, ruled out an immediate hike in sugar import duty. Chief ministers of three major sugarcane producing states — Uttar Pradesh, Maharashtra and Karnataka — had demanded hike in import duty, arguing that the move will improve the domestic sugar market.
Pawar said banks would provide Rs.7,200 crore loan to sugar mills at 12% rate to sugar mills with a condition that the money would be used for paying cane farmers. “Total interest subvention will be 12%. Of that, 7% will be paid from the Sugar Development Fund, while 5% from the government,” the minister said after the two-hour long meeting.
The minister said, “There was a demand to increase ethanol-blending from 5% to 10%. That has been accepted by the group… An inter-departmental committee would be set up to co-ordinate with oil marketing companies and sugar mills to implement it”.

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