Interest relief is a sweetener for sugar units

All outstanding loans under the Sugar Development Fund will now attract lower rate.

Sugar companies are all set to get relief on their interest payouts. The Union Budget has extended the benefit of loans at two per cent below the bank rate from the Sugar Development Fund to all outstanding loans as on October 21, 2004.

Every year, sugar companies borrow around Rs 1,200 crore from the Fund to finance cane development, modernisation and co-generation projects.

The interest on these loans had been cut to five per cent from nine per cent on loans taken after October last year. Now the benefit has been extended to all outstanding loans.

'It is an acknowledgment that the industry has gone through a tough time," Vivek Saraogi, managing director of Balrampur Chini, said.

Finance minister P Chidambaram also said in his budget speech that the Indian Banks' Association and Nabard will be asked to work out a scheme under which individual sugar factories may renegotiate the rate of interest on their past high interest loans.

'The industry will now be able to raise debt at 2-4 per cent below the prime lending rate of banks," Kushagra Bajaj, CEO, Bajaj Hindusthan, told Business Standard.

To help the co-operative sugar mills in Maharashtra, which are reeling under the impact of two severe droughts, the budget has said that sugar factories that were operational in 2002-03 sugar season will be assisted to restructure.

However, the government has cut the customs duty on molasses from 15 per cent to 10 per cent and also doubled the specific excise duty on it from Rs 500 per tonne to Rs 1,000 per tonne in order to reign in rising prices.

While this might not have an immediate impact as there is a shortage of molasses in the country, things might take a turn for the worse towards the end of 2005 when the supply is expected to go up sharply.

"In a year's time, molasses prices will crash. The increase in duty is quite substantial," said Dhruv Sawhney, chairman of Triveni Engineering Works.