Shares of sugar companies advanced as much as 18% on Wednesday after the Union Cabinet approved Rs 6000-crore worth of interest free loans to sugar mills to relieve the industry that owes Rs 21,000 crore to cane farmers.
Sugar companies also witnessed sharp increase in trading volume, which dealers attributed to short covering and positional buying.
Mawana Sugars was among the top gainers on Wednesday, while Bajaj Hindustan, Sakthi Sugars, and Rana Sugars clocked double-digit gains.
“This is a significant immediate step to provide relief to farmers,” road transport minister Nitin Gadkari told reporters after the committee’s meeting, which also cleared a proposal to raise imports of pulses to cool prices.
Farmers said the government should also ensure that mills pay-back the fair and remunerative price they to farmers. “If mills pay us in the next few weeks, it will help us buy seeds and fertilisers,” Reuters quoted Raghunath Patil, a farmer from top sugar producing Maharashtra state, as saying.
While farmers and capital markets welcome the move, industry body opined the government’s proposal will not help the industry and termed the move as mere “window dressing”.
The Indian Sugar Mills Association (ISMA) said that mills with extremely poor financials may not have access to interest-free loans and the government should instead create buffer stock to support prices.
“The government will be bearing the interest for just one year and that does not seem to be an interest-free loan in the true sense of the word. Earlier, about one-and-half-years ago, the government had given a similar loan and was willing to bear the interest for five years,” said ISMA director general, Abhinash Varma in a TV interview.
The federal government earlier this year approved a subsidy to export raw sugar, although that failed to boost shipments amid a global glut. On Wednesday, a ministerial committee chaired by Prime Minister Narendra Modi agreed to provide a loan of R6,000 crore ($940 million) to mills for which the government will bear the interest for a year.
Mills in India, the world’s biggest sugar producer after Brazil, have been lobbying the government for months seeking relief as prices of the sweetener have fallen below the cost of production due to ample supplies.
Sugar cane prices, meanwhile, have jumped over the years due to the populist policies of state governments to raise minimum support prices for farmers.