In a move that could have far-reaching impact on the manner in which the central government supports farmers, the Cabinet Committee on Economic Affairs on Wednesday decided to pay a production-linked subsidy of Rs 4.5 a quintal directly into the bank account of sugarcane farmers for the 2015-16 season, which started in October.
The step would also enable the cash-starved millers to clear their dues accruing to the growers as they would now have to pay that much less from the fair and remunerative price of Rs 230 a quintal. The mills still own around Rs 6,500 crore to the farmers.
A back-of-the-envelope calculation shows that assuming India’s average per-hectare sugarcane yield is 700 quintals, each sugarcane growing farmer family in India could stand to gain slightly more than Rs 2,000 directly from the central government this season.
The Centre will have to bear a subsidy burden of Rs 1,147 crore due to the incentive, which sources said could be adjusted from the Sugar Development Fund, which is earmarked for development of sugarcane and for modernisation of the mills.
The step would also enable the cash-starved millers to clear their dues accruing to the growers as they would now have to pay that much less from the fair and remunerative price of Rs 230 a quintal. The mills still own around Rs 6,500 crore to the farmers.
A back-of-the-envelope calculation shows that assuming India’s average per-hectare sugarcane yield is 700 quintals, each sugarcane growing farmer family in India could stand to gain slightly more than Rs 2,000 directly from the central government this season.
The Centre will have to bear a subsidy burden of Rs 1,147 crore due to the incentive, which sources said could be adjusted from the Sugar Development Fund, which is earmarked for development of sugarcane and for modernisation of the mills.
The Centre had earlier fixed a export quota of 4 million tonnes of export for 2015-16, which has been distributed among all the sugar mills in the country.
The quota has been fixed to enable millers wipe off around 4 million tonnes of surplus sugar from the domestic market in order to correct prices.
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The sugar industry cautiously welcomed the move and warned that it might have to come back to seek government help again if sugar prices do not recover.
Share price of most big sugar companies ended strong on the Sensex as the step meant that mills would now have to pay that much less amount to the farmers from the 2015-16 FRP. (see chart)
At present, sugar mills have to pay the entire cane price, called FRP, fixed by the Centre. FRP is the minimum price that sugar mills have to pay to cane farmers.
"This decision is significant as it means that the Government is no longer shying away from owning up the FRP it fixes for sugarcane, by directly contributing for a part of the cane price, instead of continuously burdening the millers. It will reduce industry’s liabilities towards cane to that extent, reducing a part of its losses," A Vellayan, President, of Indian Sugar Mills Association (ISMA) said.
He said the concept of the Government to bridge the gap, at least partially, between what the sugar mills cane pay to farmers as per their revenue realization, and what the Government wants to give to farmers, will help to reduce cane price arrears. "However, if sugar prices do not improve to cover costs during the season, the industry and farmers may seek further help from the Government’s budget," Vellayan added.
The move if successful would open the gates for more such experiments where the Centre directly credits subsidies or incentives into the bank account of farmers, bypassing the established channels.
Sugar export subsidy was given to millers in the last two seasons to help them clear cane dues to farmers, but the same has been discontinued this time due to WTO objections.
Sudhir Panwar, President of Kisan Jagriti Manch and a member of the Uttar Pradesh Planning Board said that though this is good first initiative, but the amount decided to given as subsidy is too less and many state governments are giving much higher support to sugarcane farmers.
"In the prevailing circumstances, the sugar mills had said that they would not be able to pay more than Rs 190 per quintal to farmers, while they also want that the states to bear the financial burden of anything more than Rs 230 per quintal. So the amount of Rs 4.50 per quintal fixed by the Centre to credited directly into the bank account of farmers is too little to make any tangible benefit to growers," Panwar said.
He said states like Uttar Pradesh are already giving an incentive of around Rs 400 per quintal to growers from their own account. The country is estimated to produce for the sixth straight year surplus sugar at 26-27 million tonnes this season, slightly less than the production in 2014-15.