PM panel okays Rs 7,200 cr interest-free loans to sugar mills

A ministerial panel set up by Prime Minister Manmohan Singh today 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 per cent.

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 per cent. Interest subvention will be provided for 12 per cent. Of that, 7 per cent will be from the SDF, while 5 per cent 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.