Decision on sops to sugar mills today

The cabinet committee on economic affairs (CCEA) will decide on the recommendations of the group of ministers (GoM) for providing incentives to the loss-making sugar industry tomorrow.

The GoM, headed by Union minister for external affairs Pranab Mukherjee, in its meeting earlier this month had recommended that 5 per cent ethanol blending be made mandatory with immediate effect and sugar mills be allowed to produce ethanol directly from sugarcane juice instead of taking the molasses route. At present, the blending of ethanol in petrol is subject to the former's availability and there is no binding on oil marketing companies to do it.

Apart from this, the GoM had also recommended providing an interest-free loan to sugar mills against the excise duty paid by them in 2006-07 (October-September) season and the duty payable in 2007-08 season that begins from October. The money available as loans can be used by the mills only to make payments for cane prices. Sugar millers pay a fixed excise duty of Rs 85 a quintal.

"The food ministry has prepared a note based on the GoMs recommendation. The note has been sent to the CCEA for a decision on Thursday," said a government official.

The sugar industry is facing its worst crisis, where mills are not even able to recover the cost of raw material. This years production, at 28 million tonnes, is 45 per cent higher than last year's 19.2 million tonnes. Consequently, sugar prices have dropped sharply and most companies have incurred losses in the last two quarters. Mills have not been able to pay the cane prices to farmers.

Prices are expected to fall further with yet another record production, projected at over 30 million tonnes, in 2007-08. Annual domestic demand hovers around 20 million tonnes. The Union government has already announced incentives such as creation of a 5 million tonnes buffer stock and export subsidy (at a rate of Rs 1,350 a tonne for coastal sugar mills and Rs 1,450 a tonne for the non-coastal mills) to help the beleaguered industry.