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

Dec 07 2013, 08:55 IST
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SummarySharad Pawar on Friday recommended interest-free loans of Rs 7,200 crore to the beleaguered sugar industry

after the UP government last week announced a waiver of entry tax, purchase tax and society commission, which together account for R11 per quintal or 3.9% of cane value in the state, ending an impasse as mills had refused to crush at an elevated cane price of R280 per quintal when sugar prices remained subdued and the floor price set by the Centre stood at R210.

The industry has already made it clear the realistic price for sugarcane is Rs 225 per quintal based on the Rangarajan panel formula. The interest-free loans by the Centre could benefit the industry in UP, which is worst hit due to "arbitrary fixing" of SAP of cane, to bridge the gap with SAP by Rs 2.25 per quintal. This assumes that mills in the state would get roughly 30%, or Rs 2,400 crore, of the interest-free loans recommended by the ministerial panel based on their production level and the mills would have to take loans from banks to clear the cane arrears of roughly Rs 2,400 crore.

Although the industry welcomes the move to double the mandatory level of ethanol blending with petrol, senior executives expressed doubt if any such announcement will be followed strictly by oil marketing companies as currently the average blending level in the country stands at a meagre 2% despite the government's diktat to implement the 5% blending level by June 2013. Raising the blending level, however, will mainly have an indirect impact on sugar prices as mills would be encouraged to produce more ethanol out of cane by using the sugar-heavy molasses, instead of sugar, when stocks of the sweetener are adequate in the country and, thus, prevent prices from spiralling downward. Assuming that the direct or indirect impact from such a move will add another Rs 10 per quintal to the industry's kitty and UP government's recent incentives worth Rs 11 per quintal, the gap between the viable price of cane and the SAP fixed by the UP government would still be roughly Rs 31.75 per quintal, said industry executives.

Nevertheless, the Indian Sugar Mills Association hailed the Centre's move. "The industry welcomes the initiatives of the central government to help the sugar industry to face the financial crisis it is going through. It will help the industry clear arrears of farmers," ISMA director general Abinash Verma said. The proposed measures would also help the industry venture into the production

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