Millers feel one-year moratorium clause will add to debt-laden sector’s burden. 

The Cabinet Committee on Economic Affairs (CCEA), on Wednesday, approved a proposal enabling sugar mills to avail of bank loans to the tune of Rs 6,000 crore with a one-year moratorium on repayment and the government bearing the interest cost of around Rs 600 crore.

Sugar mills are, however, sceptical about the government’s decision to provide full interest subvention on loans taken by them to clear cane payment arrears to farmers. “Why should mills take fresh loans when they are already sitting on huge piles of debt? Even if the Centre were to bear the interest burden, from where are we going to generate the profits to be able to repay the Rs 6,000 crore loans, that too within a year,” said Abinash Verma, director-general, Indian Sugar Mills Association (ISMA).

According to Verma, the package does not address the basic problem of surplus sugar stocks and depressed ex-factory prices. “This had resulted in accumulated cane dues of around Rs 21,000 crore for the 2014-15 season (October-September),” he said.

An Uttar Pradesh-based miller said that the previous UPA government in February 2014 had also announced an interest-free loan package of Rs 6,600 crore. But in that scheme, the interest cost was being borne by the Centre for five years. Mills were to repay the loan over five years, along with a moratorium for the first two years. “Bearing the interest cost for just one year is not an interest-free loan in the true sense,” the miller, who did not want to be named, added. The current sugar year is expected to end with mills holding stocks of around 103 lakh tonnes (lt), as against the normative requirement of 60 lt at the start of the next season from October 1. The surplus stocks have pushed ex-factory sugar prices — now ruling at an average Rs 20.50 per kg in Maharashtra and Rs 23.50 in Uttar Pradesh — roughly Rs 10/kg below production costs. UP mills owe farmers some Rs 9,500 crore against payment of the Rs 280 per quintal cane price fixed by the state government, while factories in Maharashtra haven’t paid even the Centre’s lower average ‘fair and remunerative price’ (FRP) of Rs 265. “Out of 180 factories that crushed in Maharashtra, 37 were paying the FRP till January. But since then, they haven’t managed to pay even that and the outstanding arrears on this count are Rs 3,442 crore as on end-May”, said M G Joshi, MD, National Federation of Cooperative Sugar Factories. Verma said that the Centre should direct government agencies like FCI or STC, rather than mills, to take loans from banks. That money can, then, be used to buy 25-30 lt …continued of sugar from the industry at a price that would cover production costs based on the FRP for cane. The Centre should bear the interest on this specially created buffer stock for two years, which will, in turn, help prop up sugar prices and enable mills to expeditiously clear their cane arrears. The above route, according to him, was more practical because banks are hesitant to lend to mills given the state of the industry now, whereas they would be more willing and faster to disburse to government agencies.