 "Extra cash flow will help reduce farmers' arrears: Abinash Verma")
Will the Rs 7,200-crore package help the sector stay afloat?
The sector is going through one of the worst financial crises, thanks to surplus sugar production in the last three seasons; another such is expected this year. Carry-forward stocks are estimated to exceed 10 million tonnes (mt) on September 30, 2014. This will block about Rs 30,000 crore of liquidity, burdening the industry with about Rs 3,600 crore in interest a year. Therefore, the interest-free loan of Rs 7,200 crore comes as assistance at the right time. It will not only reduce the interest burden of mills by Rs 860 crore through five years but cut farmers’ arrears by that amount, as the extra cash flow will have to be used to pay cane prices to farmers.
Would it have helped if this had been announced before the crisis escalated?
Had the help come earlier, it would have ensured the current cane arrears of about Rs 3,500 crore would have been cleared earlier. But approvals and sanctions from the government take time. Currently, India produces only white sugar and, therefore, the incentives for producing raw sugar will allow diversification of the product mix. The industry will be ready to grab the opportunity whenever it is on offer, and get better realisation. However, the industry will be eagerly awaiting the government's announcement of the actual incentives per tonne of sugar, as that will decide how many mills come forward to avail of these incentives.
What is your estimate for this season?
Our sugar production estimate for the 2013-14 season is 25 mt. There is some concern the delayed start will lead to some loss of sugarcane, due to which production may be lower. We need to do a detailed analysis on this, including diversion into gur manufacturing. Though cane has been supplied to gur manufacturers in Uttar Pradesh in the past two weeks, gur manufacturing in Maharashtra and Karnataka is insignificant.
How will sugar recovery be affected?
Since the cane has stayed in the fields for long, sucrose formation would be better, providing slightly higher recovery from each tonne of cane crushed. This will compensate, at least partially, the cane lost to diversion in the last couple of weeks. Therefore, though sugar production till November 30 was substantially lower than last year, it will catch up, now that all mills across the country have started crushing.
Will the government's move to increase ethanol blending to 10 per cent really kick off?
The recommendation by a group of ministers to make 10 per cent ethanol blending mandatory may increase ethanol demand by one billion litres, reducing 1.7-1.8 mt of surplus sugar. However, oil companies have to show more urgency to finalise tenders. Delayed orders (tender finalisation was six-seven months after the tenders were opened) have discouraged suppliers from committing ethanol for this wonderful programme. It saves the country about $2 billion of foreign exchange and helps reduce pollution. Therefore, oil companies have to come forward with some positive steps and ideas to implement the mandatory 10 per cent blending, for which there will be enough supplies, provided prices are viable and orders are quick.