The Hindu Business Line : Cane dues: Sugar mills not to get interest-free loans

New Delhi, Nov 15 The recently approved special bank loans to sugar mills for clearing their outstanding cane dues will not be interest-free. The Finance Ministry, it is learnt, has decided to provide only an interest subvention of five per cent, with the balance to be footed by the mills themselves.

The Cabinet Committee on Economic Affairs (CCEA) had, on October 9, approved the grant of bank loans to mills, equivalent to the actual excise duty paid by them during 2006-07 and the estimated amount payable in the current year. The interest on these loans – of five-year tenor with a two-year repayment moratorium – was supposed to be borne by the Centre.

But it now appears that the Finance Ministry is willing to only provide up to five per cent subvention, which translates into an effective interest of 7-8 per cent, assuming a prime lending rate range of 12-13 per cent.

The guidelines for the scheme will be issued soon by the Department of Financial Services, official sources told Business Line.

Seek access to SDF loans

“If there is only five per cent subvention, it would mean borrowing at higher than even the four per cent rate on Sugar Development Fund (SDF) loans. This will not be of much help, especially when the money is to be used solely for discharging cane arrears. It would have been better if we were allowed to access SDF loans at four per cent,” a miller pointed out.

The Finance Ministry has, however, held that SDF loans are available for undertaking modernisation and development projects or defraying expenses for maintenance of buffer stock with a view to stabilising sugar prices. There is no provision in the SDF Act, 1982 for making low-interest loans to factories for settling their cane dues.

Currently, mills pay an excise duty of Rs 71 a quintal on free-sale sugar and Rs 38 a quintal on levy sugar supplied to the public distribution system. Taking an annual production of 25 million tonnes (mt) and a free sale-levy ratio of 90:10, mills can theoretically borrow roughly Rs 1,700 crore from banks under the new scheme.

But the actual eligibility would be lower, as interest subvention is confined to only the portion of cane arrears relatable to the Centre’s Statutory Minimum Price (SMP). That automatically excludes most mills in Uttar Pradesh, Tamil Nadu, Punjab and Haryana, which – unlike those in Maharashtra, Gujarat, Andhra Pradesh and Karnataka – are obliged to pay the higher cane prices fixed (‘advised’) by the State Governments concerned. Thus, the mills that have paid the Centre’s SMP but not the State Advised Price (SAP) cannot borrow to discharge dues against the latter rate.

“First, they limited the scheme’s scope to only the SMP-linked arrears. Now, they are willing to provide subvention of only up to five per cent, making it further restrictive,” the miller added.

More Stories on : Credit Market | Sugar | Agricultural Policy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page