He claimed that working capital of nearly Rs 70,000 crore was stuck in unsold sugar and ethanol inventories in sugar mills. Demand for ethanol has also fallen due to the drastic dip in fuel consumption. Colle-ctively, these elements have dented the cash flow of sugar mills and impaired their ability to pay cane farmers, thereby prompting them to approach the Centre for urgent relief. According to estimates, sugarcane arrears have breached the Rs 15,000-crore level across India, a bulk of which pertains to mills in Uttar Pradesh
In fact, Isma has written several letters to the government and the Prime Minister’s Office (PMO), demanding a slew of measures such as infusion of liquidity to tide over the crisis.
“We have suggested that whatever is due from the government to the sugar industry
in the form of subsidies — including buffer subsidy, export subsidy, interest subsidy on soft loan, etc — over the past two years, should be allocated to the food ministry in a budgetary package and be released against the claims of mills,” said Verma.
Besides, the repayment of soft loans — the scheme under which the mills had availed of Rs 7,500 crore to pay farmers — had started from March. “Given there was 7 per cent interest subvention for one year, we have requested the subvention window to be increased by another year,” he said, adding it would give cash flow relief of Rs 500 crore to millers.
Isma has also urged bankers to reduce the working capital margin requirement to 10 per cent, on both sugar and ethanol, from the current 85 per cent and 75 per cent, respectively. This is because the RBI has also asked banks to consider reducing the margin requirement.
The price of both sugar and ethanol is fixed by the government. As such, there is no possibility of downside in their realisation and subsequent repayment of bank loans, added Verma.
Meanwhile, the UP government has written to the Union financial services secretary regarding removal of the sugar sector from the negative list of the Reserve Bank of India (RBI), so that millers could raise fresh capital and settle their outstanding dues.
Sanjay R Bhoosreddy, principal secretary (sugarcane development) of UP, said in his letter that after the RBI placed the sugar sector in the negative list owing to fluctuations in sugar prices, bankers became reluctant to lend to the industry, citing tough regulatory norms.