Letters: Cane arrears

This refers to the news report “Cane mills owe Rs 6,548 crore to farmers” (March 21). The problem of cane arrears has persisted over several decades. In an econometric study of the demand for bank credit from sugar mills, conducted at the Reserve Bank of India, it was found that although the cane payments had a first charge on the cash credit limits sanctioned to them, there was no mechanism to ensure that stipulation (“Reserve Bank of India Occasional Papers,” June 1983). The law levied interest at 15 per cent for delays in payments beyond 14 days. This was not followed by any mill. This may be the situation even now.

Certainly, it is to the advantage of mills to run into interest-free arrears on suppliers’ credit rather than draw on cash credit facility to make timely payments. It contributes to their profits at the expense of farmers. The Indian Sugar Mills Association issued a long press release and an even longer article in its journal questioning the RBI study that showed its lack of understanding of econometrics. It did not answer the basic questions as to whether it was true that mills ran into cane overdues even when bank credit was available to settle them and they did not pay interest on them. I hope the official committee looking into the sugar sector would examine this aspect also and suggest remedial measures.

A Seshan, Mumbai

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