india

Updated: Jun 07, 2019 07:35 IST

The government has extended the deadline for glut-hit sugar mills to take up its offer of soft loans to pay dues of cane farmers in the 2018-19 sugar season (October-September), government officials with direct knowledge of the matter said.

The last date to get such loans sanctioned has been increased by a month from earlier May 31, and the last date for disbursal of loans has been extended by two months to July 31, the officials added on condition of anonymity. The department of financial services (DFS), in the ministry of finance has been directed to issue suitable instructions to banks in this regard, the officials said. The cabinet on February 28 approved a soft loan scheme for distressed sugar mills so that they could clear dues of cane-farmers. Under the scheme, soft loans worth an estimated Rs 10,500 crore were extended to the sugar industry for one year, with the government bearing 7% of the total interest burden. That effectively reduced the interest rate on such loans to 5% for most of beneficiaries. Thus far, about 160 mills have availed a total of about Rs 3000-3,500 crore of loans under the scheme, sugar industry executives said. The cabinet came to the rescue of sugar mills in order to help them pay cane-farmers expeditiously. “To ensure that farmers are paid their dues expeditiously, the government has mandated that banks will obtain from the sugar mill, the list of farmers with bank account details to the extent cane dues are to be paid, so that the same are directly paid into the accounts of the farmers on behalf of the sugar mills. Subsequent balance if any, will then be credited into the mill’s account,” an official statement issued in March, after the cabinet decision said. In order to incentivise the mills to clear their dues, the cabinet also directed that the approved soft loans would be provided only to those units which had have already cleared at least 25% of their outstanding dues in the sugar season 2018-19.

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Abinash Verma, director general, Indian Sugar Mills Association (ISMA) said that the move will give “tremendous respite” to mill-owners and “ultimately benefit” sugarcane farmers. “The scheme was notified in March this year. It took time for the companies to prepare documents and apply for the loan. As banks, particularly in the public sector, follow detailed paperworks, loan sanctions were delayed.

Out of total Rs 10,500 crore only Rs 3,000 crore to Rs 3,500 crore could be sanctioned by the May 31 deadline. Hence, the government extended the deadline for such [loan] applications that are stuck in the process,” he said. As per the initial government order only such loans were eligible under the scheme which were sanctioned and disbursed by May 31, 2019 by the lending banks.

Verma said the extension of the deadline is a great respite for the sugar industry, which is facing acute liquidity crunch because of huge unsold inventory, and, therefore, unable to pay dues of cane farmers. “The industry will have an unsold inventory of estimated 9 million tonnes by October 2019, which will block working capital to the tune of Rs 30,000 crore,” he said.

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“The interest subvention scheme was very good and helped the farmer as banks have been instructed to pay directly to the bank accounts of the farmer. In some regions, mill owners were facing problem in getting the loan, particularly from cooperative banks in Maharashtra as most of them have exhausted their exposure limit. The extension [of the deadline] will help them,” said RP Bhagria, CEO, All India Sugar Trade Association (AISTA). Surplus sugar production over domestic consumption requirement during the last sugar season 2017-18 (October, 2017 to September, 2018) has adversely affected the liquidity position of the sugar mills resulting in building up of cane price arrears of farmers which reached to an alarming level of Rs 23,232 crores in May, 2018, a government statement said. According to the ministry of commerce and Industry, India was the largest producer of sugar in the world with 32 million metric tonne production in 2018.

Surplus production is also estimated in the current sugar season 2018-19 which has affected the liquidity position of sugar mills resulting in building up of cane price arrears of farmers which has reached to the level of Rs 20,159 crore as on February 22, 2019, it said.