Cabinet clears sugar industry sops

The government today announced a slew of measures aimed at helping the sugar industry.

These include subsidised loans to sugar mills to help them clear dues of farmers and making mandatory the blending of 5 per cent ethanol in petrol with immediate effect across the country, barring the North East, Jammu and Kashmir and the island territories.

It also allowed sugar factories to produce ethanol directly from sugarcane juice to augment its availability and reduce oversupply of sugar.

At the same time, 10 per cent blending has been made optional from this year, but this would become mandatory from next October.

A uniform nation-wide purchase price of Rs 21.50 per litre (ex-factory) for supply of ethanol for the next three years was also decided at a meeting of the Cabinet Committee on Economic Affairs here today.

The Indian sugar industry is facing its worst crisis, with mills not even able to recover the cost of raw material. This year's production, at 28 million tonnes, is 45 per cent higher than last year's 19.2 million tonnes.

Consequently, sugar prices have dropped sharply and most companies have incurred losses in the last two quarters. Mills have not been able to pay the cane prices to farmers.

In other decisions, the Cabinet also approved conversion of outstanding loans on account of harvesting and transport charges and short margins on sugar stocks, as appearing in the books of the sugar mills on April 1, 2007, into term loans up to a maximum period of five years, without any reduction in the existing rate of interest, and to provide higher interest subvention from budgetary support to the tune of Rs 600 crore.

The CCEA today gave its approval for providing loans to sugar mills from the banks under special guidelines. They would be entitled to loans of an amount equivalent to central excise duty paid by them, Finance Minister P Chidambaram told reporters after the meeting.

The government also gave its approval to extend the moratorium on outstanding term loans as on April 1, 2005, announced in September 2005 for co-operative sugar mills, from two to up to five years (reckoned from April 1, 2005) and to include co-operative sugar mills, not included in the earlier package, for availing the benefits of the earlier package.

The CCEA also extended export subsidy by one more year from April 19, 2008 to April 18, 2009, to target an additional export of 3 million tonnes of sugar.

It also decided to reduce Customs duty on denatured alcohol from 7.5 per cent to 5 per cent and on molasses from 10 per cent to 5 per cent.

The measures will be implemented once the mandatory 5 per cent ethanol blending comes into effect. It also approved extending the export assistance scheme under Sugar Development Fund to April 2009.

Prices are expected to fall further with yet another record production, projected at over 30 million tonnes, in 2007-08. Annual domestic demand hovers around 20 million tonnes.

The Union government has already announced incentives such as creation of a 5 million tonnes buffer stock and export subsidy (at a rate of Rs 1,350 a tonne for coastal sugar mills and Rs 1,450 a tonne for the non-coastal mills) to help the beleaguered industry.

Source - Business standard