Molasses levy could wipe out cheaper sugar loan gains

The chairman and managing director of Oudh Sugar Mills, C S Nopany, hailed the finance minister for reducing the interest rate on loan for restructuring of sugar mills by two percentage point below the bank rate.

"This will be of great help. The sugar industry has been passing through a bad phase for some years and is now consolidating, so this will help the industry revival," he said.

Nopany pointed out that the two year moratorium on the repayment of loans too will help those companies which are currently not in a good shape.

However, Nopany said industry would suffer because of the increase in the excise duty on molasses from Rs 500 to Rs 1,000.

"It will affect the production of ethanol, as molasses is one of the key raw materials for ethanol and more so as this comes at a time when the government is promoting ethanol as one of the environment friendly blend for use with petrol," Nopany added.

The CMD of Riga Sugar, O P Dhanuka, warned that the 100 per cent increase in the duty on molasses would erode the bottomline of sugar companies.

"For mills in Bihar, the effect will be even more as the price of molasses is low in Bihar compared to those in western India. If mills in Bihar and Uttar Pradesh have to pay Rs 1,000 per ton for molasses, the cost will be doubled and the duty element will equal the price. The effect will be less severe in Maharastra where the price of molasses is around Rs 4,000. The mills in UP and Bihar will be hit hard by the hike in duty," Dhanuka added.

Former Ficci president A K Rungta welcomed the sugar package but commented that the package could prove to be too late.

"The package should have come earlier when the industry was going through a bad phase", he said.