The cash-starved sugar industry, hit hard by “arbitrary fixing” of raw material prices by states, got a fresh lease of life on Monday as the central government stepped in to provide additional subsidised loans of around Rs 4,400 crore and almost triple an import duty on sugar.
However, the industry needs to assure the Centre that cane arrears amounting to Rs 11,000 crore as of end-May, including roughly R7,000 crore from Uttar Pradesh, will be cleared at the earliest, food minister Ram Vilas Paswan said.
After a meeting of key ministers as well as bureaucrats at the behest of Prime Minister Narendra Modi, Paswan said the government has now decided to give interest subvention of up to 12% on bank loans against the excise duties paid by mills over five years instead of three years as decided in December.
This means mills, which were already offered subsidised loans of Rs 6,600 crore by the Cabinet Committee on Economic Affairs (CCEA) in December, would get an additional Rs 4,400 crore, thus totalling Rs 11,000 crore of cheap loans. However, the loans will have to be used exclusively for clearing cane arrears. So far, mills have availed of loans of Rs 4,000 crore under this facility.
Among the other decisions on Monday, the government will raise the import duty on sugar to 40% from the current 15% to curb cheaper inflows from overseas. It will also renew a commitment to make mandatory blending of ethanol with petrol at a 5:95 ratio with vigour and seek to double the blending level in the long run to fetch more buyers and ensure competitive prices for the cane by-product. The government also decided to fix the subsidy for limited raw sugar production at Rs 3,300 per tonne until September 2014, instead of reviewing it every two months.
Responding to the policy decision, shares of key sugar companies on the BSE gained by up to 10.3%, vastly outperforming a 0.3% dip in the Sensex. BSE-listed sugar companies widened their losses to Rs 3,808 crore in 2013-14, compared with Rs 1,481 crore of losses in the previous year, mainly on high cane prices fixed by states like Uttar Pradesh, also known as the state-advised prices (SAPs) and low realisation from sugar sales due to a fourth straight year of surplus production.
Importantly, at Rs 2,800, or roughly $46, a tonne, the cane