The government today decided to pay Rs 5.5 per quintal directly to cane growers on behalf of cash-starved sugar mills to help the industry in clearing outstanding dues to farmers - a move that could cost exchequer Rs 1,540 crore as subsidy.
The move, which comes ahead of assembly election in Karnataka- a leading sugarcane producing state - would provide much-needed relief to mills that are facing a loss of Rs 8-9 per kg in selling the sweetener because of record production. This has resulted in a huge cane arrear of about Rs 20,000 crore.
"The Cabinet Committee on Economic Affairs has given approval to provide financial assistance of Rs 5.50 per quintal of cane crushed in sugar season 2017-18 to sugar mills to offset the cost of cane, in order to help the mills clear cane dues of farmers," Union Minister Ravi Shankar Prasad told reporters here.
The assistance would be paid directly to the farmers on behalf of the mills.
"Due to over production, there is liquidity problem with the millers," he said, adding the total subsidy outgo is estimated at Rs 1,540 crore.
Sugar production touched an all-time high of 29.98 million tonne (MT) till April 15 in the current marketing year (October-September). Sugar output of India, the world's second largest producer, stood at 20.3 MT in the 2016-17 marketing year. The annual domestic demand is estimated at 25 MT.
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"It will be adjusted against the cane price payable due to the farmers against Fair and Remunerative Price (FRP) including arrears relating to previous years. Subsequent balance if any, shall be credited into the mill's account," an official statement said.
Welcoming the decision, industry body ISMA's Director General Abinash Verma said this will provide a relief to the millers as they are facing a loss of Rs 8-9 per kg due to sharp fall in ex-mill sugar prices. The average cost of production is Rs 35 per kg while the selling price is about Rs 26 per kg.
"The quantum of Rs 55 per tonne of sugarcane would work out to around Rs 1,550-1,600 crore for the current season," he said.
Verma termed the decision positive for the industry even as mills are incurring much higher losses and hoped that the government would provide further assistance to bail out the industry.
To clear cane arrears, the association has been demanding that the government provide production-linked incentive to cane farmers as it was done in 2015-16 marketing year. In November 2015 too, the government had paid a production-linked subsidy of Rs 4.50 per quintal directly to cane farmers.
"Due to higher sugar production against the estimated consumption during the current sugar season 2017-18, the domestic sugar prices have remained depressed since the commencement of the season.
"Due to depressed market sentiment and crash in sugar prices, the liquidity position of sugar mills has been adversely affected, leading to accumulation of cane price dues of farmers which have reached to more than Rs 19,000 crore," the official statement said.
To stabilise sugar prices at reasonable level and help mills clear cane arrears, the government said it has already doubled sugar import duty to 100 per cent and scrapped export duty to check sliding domestic prices. It has also asked mills to export 2 MT sugar.
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