New Delhi: The government on Thursday decided to provide interest-free loans of Rs 6,600 crore to cash-starved sugar mills to make payments to cane farmers.
The entire interest burden, estimated at Rs 2,750 crore over the next five years, will be borne by the government, according to sources.
"The Cabinet Committee on Economic Affairs (CCEA) has approved Rs 6,600 crore interest-free loans to the sugar industry. The interest subvention will be 12 per cent, which will be borne by the Sugar Development Fund," Food Minister K V Thomas said.
The Food Ministry proposal before the CCEA was based on the recommendations of the informal group of ministers, which was set up by the Prime Minister under the chairmanship of Agriculture Minister Sharad Pawar to address the industry's cash crunch.
The loans will be provided by banks to sugar mills exclusively for making payments to sugarcane farmers, including arrears. The loans are equivalent to the excise duty paid by the mills in the past three years.
Mills have to repay the loans in five years and can avail of a moratorium on repayment for the first two years.
The ministry had originally proposed that 7 percent of the interest burden would come from the Sugar Development Fund and the rest from the exchequer, which the CCEA revised.
The Rs 80,000 crore sugar industry has been facing a cash crunch due to higher cost of production and lower selling prices in the wake of surplus output over the past few years.
Indian Sugar Mills Association (ISMA) Director General Abinash Verma hailed the government's decision to provide interest-free loans.
"The loans will have to be used to pay cane price of farmers, will ensure timely payment to the farmers to that extent at least, including the clearance of past cane arrears of Rs 3,000 crore," Verma said.
"It's a wonderful gesture by the Central Government for both the farmers and the industry at the same time. It will help the industry reduce around Rs 500 crore annually of interest burden in the next five years," he added.
The CCEA also extended sugar exports without quantitative restrictions for the year that started in October 2013.
Other recommendations of the ministerial panel that are yet to be considered include the recasting of loans taken by mills, sops to produce 4 million tonnes of raw sugar, setting up a buffer stock and doubling of ethanol blending in petrol to 10 percent.
First Published: Thursday, December 19, 2013, 20:41