Govt to create sugar price stabilisation fund

Centre will take a hit of Rs 3,159 crore due to interest-free loans

To end the long-term volatility in sugar prices, the Centre is planning to create a Price Stabilisation Fund. The decision to create such a fund was taken by a group of ministers last week. Modalities for the fund is being worked out, senior officials said.

Its recent decision to provide interest-free loans totalling Rs 7,263 crore to cash-strapped sugar mills, to enable these to clear dues owed to cane farmers, will cost the central government Rs 3,159 crore.  

Officials said it wasn’t clear if the burden would be on 2013-14 finances or spread out, as the loans will have to be repaid over five years, with a moratorium in the first two years. Of the 12 per cent interest subvention, seven per cent would be adjusted from the Sugar Development Fund (SDF) and the rest would come through Budgetary support. Transfer from or to the SDF is non-plan expenditure.

Agriculture Minister Sharad Pawar had said the mills would have to ensure that the loans would only be spent on paying the sugarcane arrears.

Officials said the high-level meeting which decided on the relief (also attended by chief ministers of the major sugar producing states of Uttar Pradesh, Maharashtra and Karnataka) had also decided to explore the possibility of buffer-stocking.

On the decision to expedite 10 per cent ethanol blending with petrol, officials said an inter-ministerial committee of officials from the departments of food, agriculture and finance, with representatives of oil marketing companies and sugar mills, will meet every month to monitor implementation.     

Officials further said the government offer of an incentive to produce more raw sugar woud be on a per-tonne basis and adjusted from the SDF.

The group of ministers on the subject (chaired by Pawar) had decided a host of other proposals, to now go to the full cabinet for approval. The group was formed after large-scale stoppage of sugarcane crushing in many parts of the country, including Uttar Pradesh and Maharashtra, due to a standoff between mills and farmers over the fixation of a price for cane.

In UP, the second largest sugar producing state, 70 of 99 private mills had suspended operation for 11 days, saying the cane price fixed by the state government was not viable. Sugar production in 2013-14 is estimated to be around 24.4 million tonnes, three per cent less than last year.