New Delhi: A ministerial panel set up by Prime Minister Manmohan Singh Friday recommended a bailout package for the sugar industry that includes Rs 7,200 crore of interest-free bank loans to pay dues to sugarcane growers.
The panel headed by Agriculture Minister Sharad Pawar was formed to address the liquidity crunch faced by sugar mills unable to pay higher cane prices this season and saddled with dues of Rs 3,400 crore to farmers.
The Indian Sugar Mills Association (ISMA) hailed the proposed measures, saying they would help to clear cane arrears and improve their cash flow.
The ministers also suggested recasting of loans taken by mills as per Reserve Bank 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.
Briefing the media after the meeting, Pawar said: "Rs 7,200 crore will be the loan provided by banks to the sugar industry. It will be used exclusively for payment of sugarcane and the interest portion of the loan will be borne by the Government of India and Sugar Development Fund (SDF).
"Total interest will be 12 percent. Interest subvention will be provided for 12 percent. Of that, 7 percent will be from the SDF, while 5 percent from the GoI."
Mills will have to repay the loans in five years and can avail of a moratorium on repayment in the first two years, Pawar said, adding that the final call on these measures would be taken by the Cabinet in the next two weeks.
The government created the SDF to provide short-term loans to mills at cheaper rates. The fund comprises part of excise duty and cess collected by the Centre on sale of sugar.
Finance Minister P Chidambaram, Food Minister K V Thomas, Petroleum Minister Veerappa Moily and Civil Aviation Minister Ajit Singh were present at the meeting. The Chief Ministers of Uttar Pradesh, Maharashtra and Karnataka attended, while Tamil Nadu was represented by the state Chief Secretary.
Pawar said the panel accepted a demand by states to increase ethanol-blending. An inter-departmental committee would be set up to implement the proposal. Ethanol is derived from processing sugarcane.
Sugar mills are facing a financial problem on account of higher cost of production and lower sugar prices in view of surplus output in the past few years.
The mills will get the loans from banks on the basis of the average excise duty and cess paid by them in the previous three years.
Besides the interest-free loans, Pawar said the panel has suggested restructuring borrowings of all sugar mills as per RBI guidelines.
To enhance cash flows for millers through exports, the panel recommended financial incentives to promote production of up to 4 million tonnes of raw sugar, which commands a premium in overseas markets.
"On the basis of WTO recommendations, one can support a new product. We have recommended that new product 'raw sugar' should be produced up to 4 million tonnes this year," he said.
On the industry's demand to raise the import duty of 15 percent on sugar, Pawar said there have been no inward shipments of sugar since July.
"The group recommended that a careful watch will be kept on imports. If necessary, the duty will be increased at a reasonable level," he added.
Pawar said the Food Ministry has been asked to work out the details of creating a buffer stock of sugar.
The panel advocated that state governments should set up a committee to examine the modalities of fixing sugarcane prices, including a revenue-sharing formula as suggested by the Rangarajan committee.
Asked if the problems of millers will be solved with the relief package, Pawar said: "Mills have started crushing in most states...Our efforts are to help both sugarcane farmers and the sugar industry."
After the meeting, Uttar Pradesh Chief Minister Akhilesh Yadav said, "The centre will take an informed decision after taking into consideration all aspects."
He also demanded that the panel come up with a policy that does not put sugarcane growers at a "disadvantageous position" while at the same time ensuring that sugar mills start crushing operations at the earliest.
The UP government is supporting the industry wherever required and has recently announced concessions at the state level, he added.
India, the world's second-biggest sugar producer after Brazil, is estimated to produce 24.4 million tonnes of the sweetener in the 2013-14 marketing year (October-September), sufficient to meet the domestic demand of 23.5 million tonnes.
Maharashtra and Uttar Pradesh are the country's top two sugar-producing states. Sugar is also produced in Karnataka and Tamil Nadu.