The government today decided to pay a production-linked subsidy of Rs 4.50 per quintal directly to cane farmers in the 2015-16 season to help cash-starved sugar mills clear arrears -- a move that would cost the exchequer about Rs 1,147 crore.
The decision in this regard was taken by the Cabinet Committee on Economic Affairs.
Sugar mills are facing a liquidity crunch due to low prices of the sweetener in retail markets. The millers owe about Rs 6,500 crore to cane farmers.
"In order to further reduce arrears and support cane growers, the government has taken out a WTO-compliant scheme. Production subsidy will be given to offset the cost of cane and facilitate the timely payment of cane prices to farmers," Power and Coal Minister Piyush Goyal told reporters after the CCEA meeting.
"The proposal will entail giving production subsidy directly to cane growers at Rs 4.50 per quintal of cane crushed for the production of sugar."
Eventually, this will help liquidate some of the sugar stocks and meet the export target at least to the extent of 80 per cent, he added.
Goyal said, the production subsidy "will entail a benefit of about Rs 1,147 crore directly to cane farmers".
The Food Ministry had proposed a production subsidy of Rs 4.75 per quintal out of the cane FRP (fair and remunerative price) of Rs 230 per quintal for the 2015-16 season (October-September).
The ministry had proposed payment of production subsidy from the Sugar Development Fund (SDF) directly to dedicated bank accounts of farmers.
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.
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.
The country is estimated to produce for the sixth straight year surplus sugar at 26-27 million tonnes this season.
To liquidate surplus sugar, the government has made it mandatory to millers to export 4 million tonnes in the 2015-16 season.
