The recommendation to stand guarantee for sugar cooperatives comes at a time when the state exchequer is facing a severe cash crunch. A prolonged lockdown has resulted in drying up of revenues, forcing the government to borrow for meeting even the monthly wage bill.

Sweetening the deal for sugar barons from the cooperatives sector, the state Cabinet on Tuesday approved a proposal for issuance of government guarantees for 32 sugar mills to avail pre-seasonal loans. In the process, the government ended up diluting its own norms regarding the issuance of state guarantees to mills.

The proposal will cost the state exchequer Rs 391 crore in contingent liabilities, said sources.

The sugar industry is well represented in the Uddhav Thackeray-led MahaVikas Aghadi government, with 16 of its 43 ministers having direct links with cooperative or private sugar mills.

The recommendation to stand guarantee for sugar cooperatives comes at a time when the state exchequer is facing a severe cash crunch. A prolonged lockdown has resulted in drying up of revenues, forcing the government to borrow for meeting even the monthly wage bill.

But the government has argued that the move was necessary to “ensure that all the cane is crushed in time” for the benefits of farmers. With good rainfall this monsoon and a satisfying spell last season, the state cooperatives department is anticipating a bumper crop of cane this year.

With 10.66 lakh hectare of land under cane cultivation in the state, it has estimated 815 lakh metric tonne of cane produce this season. It has further argued that the move, which comes just ahead of the crushing season, is aimed at improving the liquidity of some of the cash-starved sugar mills. Cooperative sugar mills in Maharashtra have so far availed government guarantees worth over Rs 1,400 crore.

Citing the poor recoveries, the previous Devendra Fadnavis government had initially adopted a policy of not extending guarantees to sugar mills.

After the Uddhav government took over reins, the chief minister had also insisted that “all directors (of such units) would need to furnish personal guarantees to avail such loans” after the bureaucracy pointed out past defaults.

The cooperatives department has, however, said the guarantee amount will be tagged to the current crushing season, and it will be binding on sugar mills to make payments towards the loan from the proceeds of the season.