The Indian government unveiled a Rs 5,500 crore assistance plan for the country’s sugar industry reeling under price pressures due to higher-than-expected production that has also hit farmers hard.
A government statement said the step was being taken as the liquidity problems faced by sugar mills is likely to persist in the coming season too due to excess carryover stocks and indication of similar excess production in the ensuing sugar season 2018-19.
“As a result, cane price arrears of sugarcane farmers may also peak at unprecedented high level,” it added.
The assistance package will support support the sugar sector by way of offsetting cost of cane and facilitating export of sugar from the country, improving liquidity of the industry and enabling them to clear cane price arrears of farmers.
“Given the prevailing international prices, the companies are likely to make losses on sugar exports. However, these losses are likely to be partly offset by the production subsidy of Rs. 138.8/MT of cane crushed, which translates to Rs. 8.5-9/kg of sugar exported,” said Sabyasachi Majumdar, Senior Vice President & Group Head – Corporate Ratings at ICRA Ltd.
This apart, the transport subsidy (for the mills not located in coastal states) of Rs. 3/kg is also provided on sugar exported, he said, commenting on the assistance plan.
“The direct benefit from the production and transport subsidy would amount to around Rs. 1.50-1.65/kg of sugar produced (assuming 14% of sugar production is exported),” Majumdar said, adding that the mills would also save on the interest and storage costs to the extent of sugar exported.
Details of the package:
- Provide assistance to sugar mills by defraying expenditure towards internal transport, freight, handling and other charges to facilitate export during the sugar season 2018-19 @ Rs. 1000/MT for the mills located within 100 kms from the ports, @ Rs. 2500/MT for the mills located beyond 100 kms from the port in the coastal states and @ Rs. 3000/MT for mills located in other than coastal states or actual expenditure, whichever is lower. The total expenditure on this account, which would be about Rs.1375 crore, will be borne by the government.
- In order to help sugar mills to clear cane dues of farmers, the government has decided to provide financial assistance @ of Rs. 13.88 per quintal of cane crushed in sugar season 2018-19 to sugar mills to offset the cost of cane. The assistance shall be provided to only those mills that fulfill the conditions as stipulated by Department of Food & Public Distribution. The total expenditure on this account would be about Rs.4163 crore which will be borne by Government.
- To ensure payment of sugarcane dues of farmers, both the assistance would be credited directly into the their bank accounts on behalf of sugar mills against cane price dues payable to farmers against FRP including arrears relating to previous years and subsequent balance, if any, would be credited to mill’s account.