New Delhi, Dec. 26: The cabinet today endorsed a plan to offer interest-free loans worth Rs 6,600 crore to sugar mills, which will be used to pay cane farmers.
“In today’s meeting, the cabinet committee on economic affairs (CCEA) approved the modalities for extending interest-free loans to the sugar industry,” food minister K.V. Thomas said.
The interest burden on a loan of about Rs 6,600 crore, estimated at Rs 2,750 crore over the next five years, will be borne by the government from the sugar development fund.
The Centre will offer an interest subvention of up to 12 per cent to the mills. The loan will be disbursed through a separate bank account to monitor the utilisation of money.
The finance ministry will issue instructions to banks to operationalise the lending process, including the appointment of a nodal bank.
Under the guidelines approved by the CCEA, the loans will be provided by banks to mills exclusively for making payments to sugarcane farmers, including arrears. The loans will be equivalent to the excise duty, cess and surcharge on sugar paid by the mills in the past three years.
Mills have to repay the loans in five years and can avail themselves of a moratorium on repayment for the first two years. “No interest subvention (is) to be provided for the period of default in the principal repayments,” an official statement said.
Loans will be given to mills, which have been functional during the 2013-14 season (October-September).
Mills with loans classified as non-performing assets will also be eligible for the credit provided the concerned state governments give a guarantee for the new loans.
All loans sanctioned by June 30, 2014 and disbursed by September 30, 2014 by the banks, pursuant to this notification, will also be covered under interest subvention facility, Thomas said.
Offering interest-free loans to mills was one of the recommendations of the informal group of ministers, headed by agriculture minister Sharad Pawar, tasked to address the cash crunch of the industry.
The origin of the sugar crisis can be traced to the Uttar Pradesh government’s stand to keep the minimum cane price unchanged at Rs 280 a quintal for 2013-14, refusing to give in to demands for a lower price by cash-starved millers. More than 60 private mills in UP said they would not start crushing until viable prices were set. In the end, the mills did agree to pay Rs 280 per quintal, but under certain conditions.
The CCEA today also approved a coal ministry proposal for the extension of tapering linkages for three years to nine power plants.
Tapering linkage is a mechanism where coal is supplied on a temporary basis to those power projects ,which have failed to develop mines allocated to them because of environment hurdles.