In a relief for sugar farmers, the Cabinet Committee on Economic Affairs (CCEA) on Wednesday approved a proposal to provide interest-free loan to the tune of Rs 6,000 crore to the sugar industry to clear the arrears of cane farmers.

The arrears have mounted to Rs 21,000 crore across the country. They have to be cleared through regional co-operative banks and sugar mills should provide a list of farmers, along with details of their bank accounts and dues, to be paid.

The dues would be paid directly into the account of the farmers on behalf of the sugar mills. The remaining amount of the loan, once farmers' dues are cleared, will be credited to the accounts of various mills.

The CCEA has also decided that the soft loans will be provided to those units which clear at least 50% of their outstanding arrears before June 30. This season, most sugar mills in Maharashtra, the largest sugar-producing state in the country, have defaulted on their payment to cane farmers.

According to sources, around Rs 2,000 crore would come Maharashtra's way, in addition to the Rs 2,000-crore loan announced by the Maharashtra government. This would benefit nearly 20 lakh farmers.

Last month, former agriculture minister Sharad Pawar had met Prime Minister Narendra Modi to discuss the issue of arrears of cane farmers and distress in the sugar industry.

Pawar and members of the Indian Sugar Mills Association had asked the Centre to bail out the industry by buying 10% of stock from the industry and create a buffer stock to ensure cash flow to the sector. The CCEA's decision, though seemingly beneficial to mills, has not really enthused the industry members.

According to the Maharashtra State Federation of Co-operative Sugar Factories that represents 189 mills, the current dues towards cane farmers stands at Rs 3,400 crore. The CCEA's decision has not pleased the federation much.

"We had requested the government to provide financial assistance rather than a loan. Even after the government's decision, we would have to take more loans," said Sanjiv Babar, managing director of the federation.

Babar added, "The loan would not be beneficial to sugar mills in the long run. We are producing sugar at Rs 32/kg while we are selling it at Rs 22-24 and the losses are mounting."

The government has also fixed remunerative prices for ethanol supplied for blending with petrol. It has dismantled the tender-based price discovery procedures for ethanol and "fixed attractive prices for ethanol supplied for petrol blending", a government note said.

Prices were fixed at Rs 48.50-49.50 per litre, depending on the distance from the depot, thereby effectively giving Rs 42 per litre to the mill as against Rs 32 per litre last year.