Government plays sugar daddy to states, announces package without any reform

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SummarySharad Pawar on Friday recommended interest-free loans of Rs 7,200 crore to the beleaguered sugar industry

An informal group of ministers headed by agriculture minister Sharad Pawar on Friday recommended interest-free loans of Rs 7,200 crore to the beleaguered sugar industry, mainly for clearing cane arrears, with a repayment moratorium of two years, reports fe Bureau in New Delhi.

This apart, the panel — constituted at the behest of Prime Minister Manmohan Singh — also recommended that the level of mandatory ethanol blending with petrol be doubled to 10% and additional incentives to encourage mills to produce raw sugar for exports.

For the record, the industry has welcomed the proposals. But analysts cautioned that after factoring in all these benefits and the R11 per quintal incentive announced by Uttar Pradesh government, the gap between the viable price of cane and state-advised price (SAP) in the state would still be roughly R31.75 per quintal.

“Total interest subvention will be 12%. Of that, 7% will be (paid) from the sugar development fund, while 5% from the government of India,” Pawar said after Friday's meeting. Mills will have to repay loans in five years, but can get a moratorium on repayment in the first two years, Pawar said. The Cabinet will take a final call on this issue in next two weeks, he added.

Pawar also said the rescheduling of existing loans for all the sugar mills would take place in accordance with the Reserve Bank of India guidelines. He, however, didn't elaborate. These apart, the panel will also recommend incentive to produce raw sugar up to 4 million tonnes a year in sync with the WTO recommendation on marketing and promotion of the sugar sector, he added.

Mills in UP suffered losses of R3,000 crore in 2012-13 and they still expect to incur losses to the tune of R4,000 crore in the current marketing year through September 2014 due to the elevated cane price.

“It will help to a limited extent, but the gap between SAP and the viable price is still too large to be bridged by this,” Commission for Agricultural Costs and Prices (CACP) chairman Ashok Gulati told FE. “The raising of ethanol blending from 5% to 10%, if implemented quickly and sincerely, can go a long way in helping the sugar industry. But to realise its full potential, we need to free up the molasses markets completely from any permits, quotas and movement restrictions. The idea to build a buffer stock of sugar will also help,” Gulati said.

The move came

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