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Govt brews sweeteners for sugar

New Delhi, Oct 2: The cabinet is likely to clear a Rs 500-crore package for the sugar industry that will include interest subsidy to state governments going for market loans to pay farmers support prices for cane. It will be peppered with an export subsidy at the rate of Rs 500 per tonne to help companies fork out port charges.

The loans will carry a central government guarantee, which will be offered without any fee. Normally, such guarantees come at interest rates of 0.5 per cent to 1 per cent, payable to the central government.

The move, which could come through at Friday’s cabinet meeting, also seeks to do away with import duty on equipment purchased by sugar mills setting up co-generation power units.

The package will prod state governments into taking loans that will help them settle cane growers’ arrears. The Centre will foot the difference between 4 per cent and the actual rate at which the money is raised. This will, therefore, be offered like an interest subsidy.

The government has had to work out the new package after the Uttar Pradesh government rejected an earlier loan deal on the ground that the terms were loaded against state governments — especially the provision that stopped states from announcing support prices higher than those laid down by the Centre.

Unlike the last package which was restricted to the northern region, the new blueprint will be extended to all states if it is approved. Officials said the fresh sops have a political tinge: It is being drawn up to placate the Shiv Sena, which had slammed the previous draft of the plan saying it betrayed a strong a north Indian bias.

The package is being seen not so much as pro-farmers, but as one that will benefit sugar mills in the long run. The reason is that cane planting is likely to suffer as farmers waiting for payments to be cleared, shift to alternative crops. The scrapping of duty and export subsidies are meant to help sugar mills directly.

The north Indian sugar industry has long had strong links with the ruling BJP, and the incentives being given to them are seen as part of a “payback for past favours”. The export sop is in addition to an inland freight and ocean subsidy already given to sugar firms.

“These subsidies are WTO-compatible and are being given in the hope that sugar exports will triple this fiscal from 3 million tonnes,” said officials.

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