GoM okays Rs 7200cr interest-free loan to bail out sugar mills

New Delhi: An informal group of ministers, headed by Agriculture Minister Sharad Pawar, on Friday recommended a slew of incentives to the sugar industry, including 12 per cent interest subsidy on Rs 7,200 crore loan that mills can avail of from banks for paying cane farmers.

The PM-constituted panel also recommended loan recasting for mills as per the Reserve Bank norms, incentives for production for raw sugar of up to 4 million tonnes and setting up of buffer stock besides doubling ethanol-blending in petrol to 10 per cent.

The panel, however, ruled out an immediate hike in sugar import duty.

Announcing the bailout package to the beleaguered sugar industry, Pawar said banks would provide Rs 7,200 crore loan to sugar mills at 12 per cent interest rate to sugar mills with a condition that the money would be used for paying cane farmers.

"Total interest subvention will be 12 per cent. Of that, 7 per cent will be (paid) from the sugar development fund, while 5 per cent from the Government of India," he told reporters after the meeting.

Mills will have to repay loans in five years, but can get a moratorium on repayment in the first two years, he said, adding that the final call on these measures would be taken by the Cabinet in the next two weeks.

Finance Minister P Chidambaram, Petroleum Minister Veerappa Moily, Food Minister KV Thomas, Civil Aviation Minister Ajit Singh were present in the meeting.

Chief Ministers of Uttar Pradesh, Maharashtra and Karnataka were also present.

Tamil Nadu was represented by the state Chief Secretary Sheela Balakrishnan.

On ethanol-blending, Pawar said: "There was a demand to increase ethanol-blending from 5 per cent to 10 per cent.

That has been accepted by the group."

He said an inter-departmental committee would be set up to co-ordinate with oil marketing companies and sugar mills.

The sugar industry is facing a financial crisis due to higher cost of production and falling sugar prices that have led to cane arrears of Rs 3,400 crore from 2012-13 marketing year that ended September 2013.