The union cabinet on Wednesday approved Rs.6,000 crore interest-free loan to sugar mills to help the industry clear its cane arrears, Road Transport and Highways Minister Nitin Gadkari said here.
"We have taken this decision in the interest of farmers," Gadkari told the media after a cabinet meeting.
Asked about the government's long-term plans for the sugar industry, he said: "For long term, the government is in discussion."
The major sugar producing states are Uttar Pradesh, Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh, Telangana, Bihar, Gujarat, Haryana, Uttarakhand and Punjab.
The Cabinet Committee on Economic Affairs (CCEA) has provided a one-year moratorium on this loan, and will bear the interest subvention cost to the extent of Rs.600 crore for the said period, an official statement said.
"To ensure that farmers are paid their dues expeditiously, the government has mandated that banks will obtain from the sugar mill, the list of farmers with bank account details to the extent cane dues are to be paid, so that the same are directly paid into the account of the farmers on behalf of the sugar mills. Subsequent balance if any, will then be credited into the mill account," it added.
In order to incentivise the mills to clear their dues, the CCEA has also decided that the approved soft loans will be provided to those units which have cleared at least 50 percent of their outstanding arrears before June 30, 2015.
The fair and remunerative price (FRP) of sugarcane is fixed by the government, which is Rs.220 per quintal for the present sugar season.
Sustained surpluses of production over domestic consumption in the last four years have led to subdued sugar prices. Similar situation prevails in international markets. This has stressed the liquidity position of the industry, leading to a build-up of cane price arrears.
In the current sugar year (October 2014-September 2015), the cane price arrears stand at approximately Rs.21,000 crore.
The stocks of sugar companies rose following the cabinet approval. The stocks of Balrampur Chini were up 5.62 percent, Shree Renuka Sugars 8.50 percent, Dhampur Sugar 6 percent and Andhra Sugars 7.28 percent in the Bombay Stock Exchange.