Government is looking forward to clearing the huge cane arrears and for that, they are examining a number of proposals and offering more than Rs. 1,300 crore for the loans to the sugar mills as interest subsidy to increase the ethanol production potential and forming a bumper produce of 3 million tonnes of sugar annually. Sugar prices have helped in the industrial growth and the manufacture increased biofuels to broaden the mills' produce and evade the dependency on only sugar sales return.
The government will have to bear a carrying cost of Rs 1,200 crore a year for the creation of the proposed buffer stock. Moreover, a two-year moratorium on repayment on the loans for increasing ethanol production could be provided to sugar mills. The government will pay a part of the total interest burden over five years, which is expected to be in excess of Rs 4,400 crores.
While the Centre has been helping the sugar industry clear cane dues in recent years through loans and interest subsidy, the steps haven’t prevented arrears from piling up in regular intervals when sugar prices drop, thanks to generous and unreasonable hikes in cane prices by both the Centre and states like Uttar Pradesh.
In June 2015, the Centre had offered a loan package worth Rs 6,000 crore with a 10% interest subsidy on it for one year. In December 2013, it had announced a loan package of Rs 6,600 crore, with a 12% interest subsidy for five years. However, as has been pointed out repeatedly, unless the basic issue of cane pricing is resolved by the central and state governments, massive arrears will keep surfacing in future as well.
Nevertheless, the latest push to ethanol will help mills improve their margins. At present, the country has an ethanol production capacity of 270 crore litres, according to an industry estimate. Mills will be supplying as much as 158 crore litres of ethanol for blending with petrol in the current ethanol marketing year.
Sugar mills have already threatened to stop operations in the next marketing year starting October, ahead of the crucial 2019 general elections, expressing inability to cope with huge losses. According to the Indian Sugar Mills Association (Isma), sugar prices have crashed by 25-30% in the current marketing year that started in October 2017, inflating cane costs — based on the fair and remunerative price (FRP) set by the Centre — to as much as 90-100% of mills’ sugar sales revenue. Cane costs linked to the state advised price fixed by Uttar Pradesh is even higher. This has resulted in cane arrears piling up to as much as Rs 21,675 crore as of April 15.
It's already been declared that the subsidy of Rs. 5.50 per quintal will be provided to the farmers for cane supply.
ISMA has stated that mills are losing approx Rs 63 on purchases of each quintal of cane at FRP, based on the Rangarajan panel’s linkage formula; hence the massive arrears. The Rangarajan panel had in 2012 suggested that farmers be paid 75% of mills’ consummations from sugar for cane supplies, or 70% of sales profits from sugar and other cane by-products.
The GST council is considering the probability of lower tax on sugar and cutting the GST on ethanol (a byproduct of sugarcane) from 18% to 12% so that it can be beneficial for mills to clear the dues. It has also dismissed an export tax on sugar and mandated that mills must ship out a portion of their production, in a bid to cut massive surplus inventory.