The Hindu Business Line : Bank credit for sugarcane dues

The Centre has announced a very liberal scheme of interest-free bank credit to sugar factories to clear their cane arrears (Business Line, December 11). But it secures the interests of farmers only partially. Under the law, they have to be paid interest on arrears beyond the stipulated grace period. But this is followed by factories more in breach than in observance.

An econometric study published by this writer in RBI Occasional Papers two decades ago concluded that factories preferred to avail of cane suppliers’ credit on which they did not pay interest rather than take loans from banks to settle them. If they borrow from banks, cane dues have the first charge on them.

The Cane Commissioner of Uttar Pradesh wrote to this writer, suo motu, claiming that it did not happen in his State as the stocks of the mills were pledged to banks. It was then found that the pro forma used by him to monitor the payment of cane dues had a provision for recording the quantities of sugar stocks pledged by factories to banks.

However, it did not ask for drawing power and outstanding credit, making it difficult to know whether factories borrowed to settle dues. Understandably, the Cane Commissioner did not reply to the query raised in this context. The Government should implement the law and ask the factories to pay interest to farmers along with the dues.

A. Seshan Mumbai

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Bank credit for sugarcane dues