In an attempt to consolidate farmers’ vote ahead of vital assembly elections and the 2019 general elections, the cabinet on Wednesday clear­ed a Rs 5,500 crore package for the sugar industry, including over two-fold jump in production aid to cane growers and transport subsidy to mills for export up to 5 million tonnes in the marketing year 2018-19. It is the third incentive package for sugar mills in four months.

The steps since June ha­ve ranged from higher price for ethanol extracted from sugarcane to financial assistance to sugar mills to create ethanol capacity and are aimed at helping the cash-starved mills clear Rs 13,000 crore they owe to farmers before the Lok Sabha elections, due before May.

CCEA (cabinet committee on economic affairs), he­a­ded by prime minister Na­rendra Modi, al­so approved the food ministry’s proposal to address the surplus domestic stock of sugar and help mills in clearing huge cane arrears, which could dash the NDA government’s political hopes.

“Sugar production was high last year and this year and is expected to remain high the next year. Thus, a comprehensive policy has been approved by CCEA to deal with the excess production,” finance minister Arun Jaitley told reporters after the cabinet meeting. A total assistance of Rs 5,538 crore has been approved to offset cost of cane and facilitate exports, he added.

Food minister Ramvilas Pa­swan said decisions would help stabilise the domestic market and enable mills to make cane payment to growe­rs. The government will pr­ovide financial assistance of Rs 13.88 per quintal cane crushed in 2018-19 marketing year to offset the cane cost against Rs 5.50 per qui­ntal announced for the current 2017-18, ending this month. The total expenditure on this account would be Rs 4,163 crore, said an official statement.

The Centre will also provide assistance to mills by compensating expenditure towards internal transport, freight, handling and other charges to facilitate 5 million tonnes exports in 2018-19 (October-September).

A transport subsidy of Rs 1,000 per tonne will be given for mills located within 100 km of ports, Rs 2,500 per tonne for mills located beyond 100 km from port in coastal states and Rs 3,000 per tonne for mills located in other than coastal states or actual expenditure, whic­he­ver is lower. The total expenditure on this account would be about Rs 1,375 crore, the statement said.

“To ensure payment of su­garcane dues, assistance would be credited directly in­to accounts of farmers on behalf of sugar mills against cane price dues against FRP (fair and remunerative pri­ce) including arrears relati­ng to previous years,” it said.

Reacting the cabinet decision, Indian Sugar Mills As­sociation (Isma) director general Abinash Verma said it would help reduce the industry’s cane price liability by 5 per cent over the next year’s FRP of Rs 275 per quintal of sugarcane. “This is the largest financial assistance towards FRP given by the central government and will substantially reduce expenditure and working capital requirement of sugar mills in the next year,” he said. The transport subsidy will encourage mills to export sugar, he added.

The sugar industry is facing a glut-like situation because of record production of 32 million tonnes in the 2017-18 marketing year, resulting in a closing stock of 10 million tonnes at the end of this month. India’s sugar output is set to increase further to 35 million tonnes in the next marketing year. The annual domestic demand stands at 26 million tonnes.

In the last one year, the government has taken a slew of measures to bail out sugar mills as well as cane farmers. First, it doubled the import duty on sugar to 100 per cent and then scrapped the export duty on it. It also ma­de it compulsory for sugar mills to export 2 million to­n­nes even as global prices were low. In June, the government had announced Rs 8,500 crore package for the industry, which included soft loans of Rs 4,440 crore to mills for creating ethanol capacity. It will bear an interest subvention of Rs 1,332 crore for this.

Meanwhile, despite the sweetened package sug­ar st­o­cks tumble up to 10 per cent on Wednesday. Shares of KCP Sugar & Industries Corporation dived 9.77 per cent, Dhampur Sugar Mills sl­u­mped 9.41 per cent, Tri­veni Engineering & Industries 7.14 per cent, Ponni Sugars 6.40 per cent, Balrampur Chini Mills 5.65 per cent, Dwarikesh Sugar Industries 5.37 per cent and Dalmia Bharat Sugar 5.03 per cent on the BSE.

Reacting to the package, Icra said it aims to expedite the pace of exports and likely to relieve the pressure on domestic sugar stock. “Given the prevailing international prices, the companies are likely to make losses on sug­ar exports. However, these losses are likely to be partly offset by the production subsidy of Rs 138.8 per million tonnes of cane crushed, wh­ich translates to Rs 8.5-9 per kg of sugar exported. This apart, the transport subsidy for the mills not located in coastal states of Rs 3 per kg is also provided on sugar expo­rted,” said Icra senior V-P Sabyasachi Majumdar.

“The direct benefit from the production and transport subsidy would amount to around Rs 1.50-1.65 per kg of sugar produced, assu­m­ing 14 per cent of sugar is exported,” he said.

Further, the mills would also save on the interest and storage costs to the extent of sugar exported. These measures also aim to expedite the pace of exports, which is likely to relieve the pressure on domestic sugar stocks and thus support domestic sugar realisations to a certain extent, he said.

Icra also said the increase in price of ethanol produced from B-grade molasses and cane juice may provide some respite for the over-supply hit sugar industry. With the domestic sugar production estimated (preliminary) to increase by 10 per cent in SY2018, the industry may face a situation of over-supply and thereby sugar prices are likely to be under pressure. The government measures to increase prices of ethanol produced from material such as B-gr­ade heavy molasses and sugarcane juice is likely to offer so­me protection to mi­lls’ realisations and profitability in the medium-term. An Icra note said the near -term upsides though are lik­ely to be limited, given the limitations in distilling capacity available with sugar mills.