State to seek Centre's nod to fund 65 sick co-ops' working capital

This is in addition to the Rs 947 crore loans it has committed to raise from the market to bail out sugar co-operatives in the state.

Of this Rs 622 crore will be to finance last year's sugar cane crushing expenses, while Rs 325 crore will be disbursed as export incentives for sugar factories.

According to a politician: "This is a political largesse being doled out to the sugar barons of Maharashtra.

Most of the CSFs have their moorings within the Sharad Pawar-led Nationalist Congress Party (NCP) and this is clearly a pre-poll strategy by Pawar to keep his flock together."

The state initiative reverses a six-month-old Cabinet decision not to extend any state backing for loans taken by CSFs and textile mills in the state.

The move also comes at a time when the state has reported a sugarcane production of only 400 metric tonne this fiscal.

While the CSFs in the state have a combined crushing capacity of 800 metric tonne, with only 400 metric tonne available this year the loan plans (backed by state government guarantees) for the 175 CSFs would result in a thin spreading of the funds that defies the logic of prudent business, the politician said.

The only in-built catch in the state government's plans pertains to the 'prior permission' of the Union government required under Article 293 of the Indian constitution before these loans may be raised.

Defaults by co-operative units had come to such a sorry pass that the Maharashtra government had to contend with its guarantees being invoked repeatedly by financial institutions to recover their dues.

On more than one occasion the fast-track Debt Recovery Tribunals (DRTs) ordered the attachment of the state government's immovable property (even the office of the secretary for co-operatives and textiles located at Mantralaya).

The state government has so far backed sovereign guarantee loans worth Rs 6,184 crore in the co-operative sector.

Of this, Rs 3,000 crore has already been retired, while financial institutions such as the Industrial Development Bank of India, IFCI and ICICI had invoked the Maharashtra government's guarantees to recover loans to the tune of Rs 330 crore that were defaulted upon by the CSFs and textile mills.

Many of these defaulter CSFs will now again receive low interest loans (they have to only bear one third of the six per cent interest on the loans), while the state government and Union government will bear an one-third share each.