A customer looks at sugar grains at a store in the Old Delhi area of New Delhi, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Sugar Bailout Package Worth Rs 4,000 Crore, Says Sharad Pawar; Urges More Steps

Nationalist Congress Party chief and former agriculture minister Sharad Pawar wrote a letter to Prime Minister Modi seeking urgent steps to help cash-starved mills to clear part of the over Rs 22,000 crore dues to cane farmers.

Pawar also noted that the bailout package announced for sugar industry recently was worth only Rs 4,047 crore as opposed to the stated Rs 8,500 crore.

This comes after the Centre, On June 6, announced a Rs 8,500 crore package including creating buffer stock for sugar, enhancing ethanol production capacity and fixing a minimum selling price to cut mill losses. The package also included Rs 1,540 crore production-linked-subsidy for cane growers announced last month.

Also read: India Seeks to Boost Sugar Prices by Restricting Supply

Pawar sought an increase in the ex-mill price of the sweetener from Rs 29 per kg, an export policy to ship 80 lakh tonnes sugar by doubling production-linked subsidy to Rs 11 per quintal, a hike in ethanol price to Rs 53 per litre and restructuring of outstanding past loans with moratorium of three years.

Sugar mills are incurring losses as prices have fallen below production cost on account of record output of 31.5 million tonnes in the 2017-18 season ending September as against the annual domestic demand of 25 million tonnes.

“The bailout package initially published to be Rs 8,500 crore and subsequently mentioned as Rs 7,000 crore...has created confusion and ambiguity,” Pawar said in the letter written to Prime Minister Narendra Modi.

If one goes by the net financial outgo on each of the decisions, the scheme for assistance to sugar mills by way of incentive on sugarcane is Rs 1,540 crore, creation of buffer stock of 30 lakh tonnes is Rs 1,175 crore and interest subvention on augmenting ethanol capacity is Rs 1,332 crore -- making the total Rs 4,047 crore.
Sharad Pawar, President, Nationalist Congress Party

Also read: India’s Sugar Bailout Package Not Enough To Address Industry Woes, Says Crisil

“Thus, the net financial outgo from the exchequer of the government appears to be Rs 4,047 crore and therefore, to say that the bailout package is of the magnitude of Rs 8,500 crore or Rs 7,000 crore seems to be incorrect,” he noted.

Pointing out that providing interest subsidy on bank loans for ethanol capacity expansion will not address immediate problem of surplus sugar, Pawar said that the right step will be to increase the ethanol price to at least Rs 53 per litre at distillery gate.

In the light of increased international crude oil prices and with the help of reducing current GST of 18 percent on ethanol, the clubbed accruals could be loaded on the current basic price of ethanol of Rs 40.85 per litre, he added. He also said that fixation of ex-mill price of sugar at Rs 29 per kg was lower than the cost of production which is in the range of Rs 34-36 per kg.

“There is a need for two different levels of minimum sugar price by keeping difference of Rs 2 per kg for level playing field taking into account that the northern sugar mills predominantly produce superior quality M-grade and rest of the country produce S-grade,” he said.

With regard to the sugar buffer stock, Pawar said it was ‘not practical’ to credit on a quarterly basis the reimbursement into farmers’ account . “It is logical that the reimbursement should be made directly to the sugar mills who would make use of it for releasing cane payment to the farmers on time and in full,” he said.

Pitching for higher incentive to export surplus sugar abroad, Pawar said, “...as you are aware, there is a need to push as much sugar out of the country as possible. Therefore, I insist on announcing export policy as early as possible for exporting 80-lakh tonne under MIEQ to be achieved within next 18 months for which the current cane incentive of Rs 5.50 per quintal needs to be doubled.”

He also demanded the government to reschedule outstanding past loans of cash-starved mills and restructure them with moratorium of three years. “In the absence of this, the mills may not be able to take up the ensuing crushing season for want of finance,” he noted.