New Delhi: In the first ever direct subsidy payment to farmers, the government on Wednesday decided to pay sugarcane growers Rs 4.50 per quintal for the cane they will sell to loss-making millers, a move that will cost Rs 1,147 crore to the exchequer.


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The Cabinet headed by Prime Minister Narendra Modi decided to give a production-linked subsidy directly to cane growers, as export subsidy, which was provided in the last two sugar seasons 2013-14 and 2014-15 to millers, was questioned by many countries at the WTO.


Also Read: Sugar mills' cane arrears to fall Rs 1,100 crore on govt subsidy


The decision was hailed by the industry body ISMA, which said that millers' cane price liability would reduce by about Rs 1,100 crore, thus partly compensating their losses.


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Sugar mills are facing a liquidity crunch due to surplus output that lead to low retail prices of the sweetener.


"To further ensure timely payment of cane dues in the current sugar season, the government has decided to provide a production subsidy at the rate of Rs 4.50 per quintal of cane crushed to offset cane cost," an official release said.


The subsidy would be paid directly to farmers on behalf of millers and adjusted against the cane price payable to farmers towards FRP, including arrears of previous years.


The remaining balance, if any, would be credited into the millers' account, it said, adding that priority will be given to settling cane dues arrears of the previous years.


The Centre has fixed Fair and Remunerative Price (FRP), the minimum price that mills have to pay to cane farmers, at Rs 230 per quintal for the 2015-16 season (October-September). With the subsidy being borne by the government, mills will now have to pay only Rs 225.5 a quintal to farmers.


Briefing the media, Power and Coal Minister Piyush Goyal said the government has come out with a "WTO-compliant scheme" to further reduce arrears and support cane growers.


He said cane arrears to farmers have come down to Rs 6,000-6500 crore from the peak of about Rs 22,000 crore.


"The proposal will entail giving a production subsidy directly to cane growers at Rs 4.50 per quintal," Goyal said, adding that total subsidy "will entail a benefit of about Rs 1,147 crore directly to cane farmers".


The scheme would help liquidate some of the sugar stocks and meet the export target, he added.


The subsidy would be provided to those mills which have exported at least 80 percent of the quota fixed by the food ministry.


Mills having distilleries to produce ethanol would have to achieve 80 percent of the targets notified by the Department under the EBP (ethanol blending programme).


ISMA Director General Abinash Verma said the subsidy will work to be around Rs 1,100 crore on the basis of estimated cane crushing this season. "It will reduce industry's liabilities towards cane to that extent, reducing a part of its losses," he said.


India, the world's second largest sugar producer, is all set to produce surplus sweetener for the sixth straight year at 26-27 million tonnes in 2015-16.


To liquidate surplus stocks, the government has made it mandatory to millers to export 4 million tonnes in the current season.