The Hindu Business Line : A case of the fence eating crop?

THE crisis that has been brewing in the sugarcane growing regions of Maharashtra has reached a stalemate. The Maharashtra Government has been insisting, all along, that no factory should pay more than Rs 850 per tonne of sugarcane. There is general acceptance that this year the final price for sugarcane will be much higher than the Statutory Minimum Price, given the fact that sugar, molasses and bagasse prices are on the upswing. There is also no denying that the cane growers in most other States are getting more than Rs 1,100 per tonne.

All the same, the Maharashtra Government firmly refused to hike the advanced price above Rs 850. One day, during the agitation, the Maharashtra Chief Minister, Mr Vilasrao Deshmukh, spoke to representatives of farmers and said it may be possible to pay an advance price of Rs 1,200 — subject, of course, to the approval of the Cabinet. The Cabinet never met; or it never came to approve the assurance given by the Chief Minister.

Two days later, it came out with a formula that the advanced price should be limited to Rs 850 per tonne, and that the factories could pay such additional price as may be justified by individual transactions. This was considered signal enough for the sugar factories to offer to pay, when the cane was delivered, Rs 850 per tonne in cash and a post-dated cheque, encashable in six weeks, for Rs 350 per tonne.

The farmers have resisted harvesting for six weeks now. This is a brave act in a year of devastation by flood. The river waters are shrinking and the load-shedding is so severe that it has become extremely difficult to irrigate the sugarcane crop to keep it ready for delivery to the factories.

The farmers can be said to have made a tactical retreat, which speaks well of the acumen and statesmanship of their leaders. There are, however, political parties, with only marginal interest in the agricultural economy that are now rushing into areas from where traditional farm organisations are retreating.

One can say that the question of sugarcane prices for the 2005-06 season is settled for the time being. That does not, however, mean all the issues are settled. For the last four years the Maharashtra cane-growers got an advance price, which was substantially lower than the Statutory Minimum Price. The sugar prices are abnormally depressed, it was argued. But this year they were not. Why not make up this year for the last four years?

Prices of sugar and other products are booming and it should be possible for a reasonably efficient sugar factory to pay about Rs 2,000 for a tonne of sugarcane. But it cannot be done. Why? Nabard (National Bank For Agriculture And Rural Development) does not allow it! Nabard is said to have issued instructions to the sugar factories that any unit paying more than Rs 850 as advance price per tonne of sugarcane will automatically lose the advantage of the credit package it is preparing.

Everyone in the Government and from the sugar factories spoke as if he had personally seen a copy of the Nabard circular. Nabard officials maintain that this circular was based on the findings of the committee that went into the financial structure of a number of factories and that both the report and the circular were made available to all sugar factories.

There are others who maintain that the Nabard circular mentions the price of Rs 850 as a minimum advance price, and not a maximum price. It was even hinted that the Union Ministries of Finance and Agriculture initiated the idea.

If it were true, that would hardly make sense. Nabard was established as a development bank for providing and regulating credit and other facilities for the promotion and development of agriculture, small industries, cottage and village industries, handicrafts and other rural crafts and allied economic activities in rural India.

It does not get into any direct financing itself. It is essentially a refinancing organisation. It has supervisory functions that include inspection and offsite surveillance of the rural financial institutions.

As a bankers' bank, Nabard would be fully justified in making an on-the-spot or off-site inspection of the rural banks as also industries that they finance. But does its mandate permit it to decide the maximum price at which sugar factories buy and sell? Would the Reserve Bank of India do that for any industry?

It would appear that a Nabard committee examined the financial situation of a number of cooperative sugar factories in Maharashtra. It came to the conclusion that the situation was not only serious but also precarious. Licences had been issued where none was justified. Decisions regarding the opening of a factory and its capacity were highly political.

In several cases, managements were found grossly inefficient and most of the factories could be salvaged only with great difficulty. Corruption and malpractices were rampant. In addition, the fact that decisions on the price to be paid for sugarcane were influenced by political factors have not augured well for the industry.

On the basis of these findings, the Government should have moved to undertake a general inspection of all the factories and the holdings of movable and immovable property of those who owned them. This would have permitted the government to classify the existing factories among those salvageable and those that were bound to sink.

Nabard, functioning as the banker, would have taken that course. Unfortunately, it did not. It trained its guns on the most vulnerable, and ordained that they should not be paid more than the Statutory Minimum Price calculated for a basket-case factory.

The farmer has till now looked upon Nabard as a friend. It seems he will have to have second thoughts about it.

(The author is Founder, Shetkari Sanghatana, and Member of Parliament (Rajya Sabha). He can be reached at sharad.mah@nic.in)

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