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Interest incentive to bail out sugar mills

Sharad Pawar (right) with minister of state for food and public distribution K.V. Thomas in New Delhi on Friday. (PTI)

New Delhi, Dec. 6: The government has drawn up a plan for interest-free loans to sugar mills.

“We want to encourage production of raw sugar,” agriculture minister Sharad Pawar told reporters after chairing a meeting of an informal group of ministers.

The meeting also agreed to double the blending of ethanol — a by-product of sugarcane — with petrol to 10 per cent.

Under a bailout package for the beleaguered industry, Pawar said banks would provide Rs 7,200-crore loan to mills at 12 per cent interest on condition that the money be used to pay cane growers.

However, the entire interest will be waived off, with the Centre paying 5 per cent of the interest and the sugar development fund the rest.

Mills will have to repay the loans in five years, but can get a moratorium on payment in the first two years.

The cabinet will take a final call in the next two weeks

Finance minister P. Chidambaram, petroleum minister Veerappa Moily, food minister K.V. Thomas and civil aviation minister Ajit Singh were at the meeting. Also present were chief ministers of Uttar Pradesh, Maharashtra and Karnataka.

As the prices of cane have either increased or remained unchanged from last year in most states, mills have been struggling as sugar prices have declined. While the price of cane is determined by the state governments, the price of refined sugar is set largely by market forces.

Because of the wide variation in the prices of input cane and output sweetener, a majority of mills had refused to start production last month, the peak cane harvesting period, unless the cane prices were lowered. Mills normally begin processing cane from early to mid-November.

The PM-constituted ministerial panel has also recommended incentives for production of raw sugar of up to 4 million tonnes and setting up of a buffer stock.

Pawar said an inter-departmental committee would be set up to co-ordinate with oil marketing companies and sugar mills on the proposal to double the blending of ethanol.

The panel, however, ruled out an immediate hike in sugar import duty.

“The industry welcomes the initiatives of the central government to help the sugar industry to face the financial crisis it is going through,” Abinash Verma, director-general of the Indian Sugar Mills Association, said in a statement.

He said the measures would help the industry to clear arrears to cane farmers and help mills to diversify their production, but reiterated a demand to link cane prices to sugar.

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