The sugar industry has cautiously welcomed the Centre’s move enabling it to charge a cess of Rs 2 per kg on sugar, the proceeds from which will be used to facilitate liquidation of cane payment dues to farmers.

Sugar already attracts a cess of Rs 0.24/kg, whose revenues are earmarked for financing modernisation of mills and cane development activities. The Lok Sabha, on Tuesday, passed the Sugar Cess (Amendment) Bill to allow enhancement in the ceiling of the cess from the current Rs 0.25 to Rs 2/kg.

The Centre, it is learnt, wants to make use of the enhanced ceiling to raise the levy to Rs 1.24 per kg. The extra cess, on an annual production of 25-26 million tonnes, would help mobilise an additional Rs 2,500-2,600 crore or nearly half of the estimated Rs 5,500 crore of cane arrears from the 2014-15 sugar season (October-September).

Indian Sugar Mills Association (ISMA) president A. Vellayan said that the increase in cess – also requiring Rajya Sabha approval – would help in creation of a ‘price stabilisation fund’, which is self-financing and hence compatible with World Trade Organisation rules.

“In my view, the higher cess for the fund should be collected as long as ex-factory sugar prices are below Rs 32 per kg, which is the all-India average cost of production. The government can make a direct transfer from this fund to farmers, which will cover the difference between the FRP (fair and remunerative price) for cane fixed by it and what mills can pay based on their production costs”, he said at ISMA’s 81st annual general meeting here on Wednesday.

The Centre, last month, decided to provide a production subsidy of Rs 4.50 per quintal to partially cover the FRP of Rs 230 per quintal payable for cane in the 2015-16 season. This subsidy —amounting to Rs 1,147.5 crore on the projected 255 million tonnes of cane crushed and to be funded from the additional cess — would be transferred directly into the bank accounts of farmers.