The Union Cabinet on Wednesday cleared a finance package of Rs 5,500 crore for the sugar industry, which is reeling under an unprecedented glut in production.The government wants to ensure that the mounting sugarcane dues to farmers do not develop into a political landmine in an important election year.

Under the package, sugar mills would get a transport subsidy on sugar exported up to a maximum of 5 million tonnes and a financial assistance of Rs 13.88 per quintal of cane crushed during the forthcoming sugar season 2018-19, commencing next month, Union Finance Minister Arun Jaitley said while briefing the media on the Cabinet decisions.

This is the second financial package to bail out the sugar industry after Rs 8,500 crore was announced in June. The industry is facing a glut-like situation because of record production of 32 million tonnes (mt) in the 2017-18 sugar season. With the acreage under sugarcane being higher, there is a possibility of having even higher sugar production in the coming season.

Under the package, while sugar mills located within 100 kilometres from ports would get Rs 1,000 per tonne as transport, freight and handling charges, those situated more than 100 kilometres from ports but within coastal States would be given a sum of Rs 2,500 per tonne towards meeting these expenses.

The financial assistance available to mills located in States, which have no coastal areas, would be Rs 3,000 per tonne or the actual expense they incur, whichever is lower. The government would set aside a sum of Rs 1,375 crore for this, an official statement said.

Besides, to help sugar mills clear the dues to sugarcane farmers, the government has also decided to give a production assistance of Rs 13.88 per quintal of cane crushed during the coming sugar season. This is nearly 2.5 times the financial assistance of Rs 5.5 per quintal given to the mills to offset the cost of cane in the previous season.

The government is expecting a total outgo of Rs 4,163 crore on this account. The government plans to pay the farmers this amount directly, but it will be adjusted against the dues from the mills to them.

According to Indian Sugar Mills Association (ISMA) Director General Abinash Verma, the government’s decision to pay Rs 13.88 per quintal of sugarcane crushed would help reduce the industry’s cane price liability by around 5 per cent of the next year’s fair and remunerative price (FRP) of Rs 275 per quintal.

“This is the largest financial assistance towards FRP ever given by the government and will substantially reduce the expenditure and working capital requirement of sugar mills next year,” Verma said in a statement.

He also welcomed the government proposal to reimburse a part of internal transport, freight and handling charges incurred on sugar exports by mills, but said there is a need for making exports compulsory for all mills in the country.