Centre Extends Moratorium by Six Months on Rs 15,000 crore Soft Loan to Sugar Mills

Government’s soft loan scheme of Rs 15,000 crore for sugar mills is moving at a snail's pace. Sources said that the government has extended the moratorium period for repayments by six more months and now the moratorium period is one-and-a-half years.

What is moratorium period?

In easy words, it is a time during the loan term when the borrower is not required to make any repayment.

The Centre had announced the loan package in two tranches

• First loan package was in June 2018 amounting to Rs 4,440 crore.

• The other loan package was in March 2019 of Rs 10,540 crore.

The loan which is given at subsidised interest rate is called soft loan. The main objective of this was to help millers in clearing cane arrears and distract excess sugar for ethanol manufacturing.

A highly placed source said "When the soft loan scheme was launched to augment ethanol production in the country, one year moratorium was provided. This has now been extended to 1.5 years in the interest of sugar mills and farmers," and he added that a notification in this regard will be issued soon.

As per official data,  out of total 418 applications for the loan, the food ministry found only 282 eligible and 114 applications were cleared for loans amounting to Rs 6,139.08 crore. But banks have permitted the loan to 45 applicants and disbursed Rs 900 crore to 33 applicants till September-end, the data showed.

Food ministry is implementing soft loan package, which provides a list of eligible loan applicants to banks for further process.

According to experts, only 5-6 % of the total soft loan amount of Rs 15,000 crore announced under the scheme has been spend so far by banks.

In the first screening at the ministry level much of the time is being wasted. Banks should check the eligibility criteria and give the loan amount accordingly.

Another industry official said "In this process, the scheme has not been able to take off properly. The scheme was launched in June 2018 and still the ministry is checking the applications. At this pace, mills may not benefit from the scheme. It takes at least 18 months to establish an ethanol unit".

At present, for ethanol making around 3-4 lakh tonne of sugar gets diverted. Additional capacity which is created under the scheme, for ethanol production around 9-10 lakh tonne of sugar is expected to be diverted.

As per industry data, till October 22 of the 2018-19 season (October-September) sugar mills have supplied 175 crore litres of ethanol to oil marketing companies and have helped them achieve 5.2 per cent blending with petrol.

The main purpose of announcing the soft loan was to improve liquidity of mills, reduce sugar inventory & facilitate timely clearance of cane dues of farmers. But, cane arrear are still at Rs 9,000 crore so far this year based on the sugarcane price fixed by both the Centre and states , which is very high, as per the ministry data.

India is world's second largest sugar producer after Brazil, still there is a sugar glut in India. In 2017-18, the country had produced 32.5 million tonne and in 2018-19 seasons (October-September), the country has produced 33.1 million tonne, which is much higher than the domestic consumption of 25 million tonne.