In an attempt to resolve the crisis in the sugar industry, an informal group of ministers headed by Agriculture Minister Sharad Pawar Friday decided to provide interest-free loans to sugar mills to start operations this season. The scheme will be achieved by 12 per cent interest subvention for loans to the tune of Rs 7,200 crore.

The decision was taken at a meeting chaired by Pawar and attended by Finance Minister P Chidambaram, Petroleum Minister Veerappa Moily, Food Minister K V Thomas, Civil Aviation Minister Ajit Singh and CMs of UP, Maharashtra and Karnataka. Tamil Nadu was represented by its chief secretary at Krishi Bhavan here.

"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). Interest subvention will be provided for 12 per cent. Of this, 7 per cent will be from the SDF, while 5 per cent from the Government of India," Pawar told reporters briefing about the bailout package agreed during the meeting.

This bailout package is expected to ease the liquidity crisis with sugar mills that threatened to snowball into a political crisis with mills saddled with sugarcane dues of farmers delaying crushing, resulting into agitations from farmers. The sugar industry was reeling under financial crisis arising out of cane arrears to the tune of Rs 3,400 crore from 2012-13 season.

While the decision will help sugar industry avail loans as working capital for crushing operations, the meeting also recommended a slew of other measures to help sugar industry tide over the challenges. The measures included restructuring of loans to the sugar mills and incentivising production of raw sugar while setting up a buffer stock of sugar.

Additionally, the meeting favoured doubling ethanol-blending in petrol to 10 per cent levels. "There was a demand to increase ethanol-blending from 5 per cent to 10 per cent. That has been accepted by the group," Pawar said.