Mills likely to get additional Rs 6,000 crore in subsidised loans.
As part of its renewed efforts to address farm distress, the government is considering extending additional subsidised loans of at least Rs 6,000 crores to sugar mills and others to expand their ethanol production capacity — a move that is aimed at helping the mills diversify their product basket away from its over-dependence on sugar, and bolstering their ability to clear cane dues to farmers.
The food ministry has floated a proposal to facilitate cheaper loans to 142 more sugar units belonging to various companies — on top of the 114 units that have already been selected to avail of such loans worth Rs 6,139 crore under a scheme approved by the Cabinet last year, an official source told FE. Not just sugar mills but even standalone ethanol production units, which are not in the sugar business but typically source excess molasses from sugar mills to manufacture the biofuel, are proposed to be covered by the loan scheme this time.
The eligible units will get an interest subsidy of up to 6% or a half of the actual interest they pay for the loan offered to expand ethanol capacity, whichever is lower. The Centre will offer the interest subsidy for five years, within which the loans have to be repaid by mills.
The Cabinet Committee on Economic Affairs (CCEA) could take up this proposal as early as this week.
With the hike in the loan amount now, the government’s interest subsidy on the total package (of over `12,000 crore) is expected to rise to around `3,650 crore over five years, based on the food ministry’s estimate last year when the package was first launched. However, millers say the government’s subsidy outgo would be much lower than this level.
Thanks to a drastic mismatch between the cost of production and the sale price of sugar, mainly due to the exorbitant rates of cane set by the centre and states like Uttar Pradesh, cane arrears zoomed to `20,000 crore as of January 15 — a record for this time of the year — from just `6,500 crore a month before, as crushing gathered pace. Uttar Pradesh alone made up for 41% of the arrears, followed by Maharashtra (26.5%) and Karnataka (19%).
The lure of subsidised loans and a hike in prices of ethanol meant for blending with petrol, had prompted a total of 256 sugar units to plan capacity expansion to produce more ethanol. Various units of major players, including Triveni, Shree Renuka Sugars and Dalmia Bharat Sugar, were selected by the food ministry to obtain the subsidised loans in the first phase.
“Any such move by the government could drive up mills’ ethanol production capacity to around 500 crore litres in two years, against the current 300 crore litres,” according to Indian Sugar Mills Association director general Abinash Verma. At present, the country requires 330 crore litres of ethanol to achieve the 10% blending (with petrol) level. The government should issue necessary guidelines to oil marketing companies to substantially raise their sourcing of ethanol in at least major cane producing states, including Uttar Pradesh and Maharashtra, he added.
The move comes at a time when the sugar mills, already struggling to cut a glut in the market, are witnessing yet another year of surplus production.
To provide relief to the sugar industry, already struggling to cope with exorbitant state-fixed cane prices, the Cabinet committee on economic affairs (CCEA) in September 2018 decided to raise the rate of ethanol produced directly from sugarcane juice by 25% from the rate announced in June, for blending with petrol. The move was aimed at incentivising mills to cut surplus sugar production that would prop up prices of the sweetener. Ethanol blending with petrol will also help reduce the country’s oil imports.