Finally sugar millers hue and cries have reached the ears of the centre.The centre has issued a notice to provide financial assistance to sugar mills to improve their liquidity position. This official notification has come after full six months of comprehensive relief package which was first mooted by food minister Sharad Pawar.
The gazette notification on the Scheme for Extending Financial Assistance to Sugar Undertakings, 2007 — issued on December 7 — is intended to enable all sugar units operational in the past two years to clear their statutory minimum price (SMP)-related arrears on cane price to farmers for 2006-07 and for 2007-08.
Food ministry has been demanding for interest free loans for sugar units from a long time significantly, the notification has authorized this demand of food minister. This means full financial support at 12%, although the finance ministry has so far been persistently blocking the suggestion, arguing instead for only 5% financial support. That would have confirmed loans for sugar factories at 7%. Full subvention will cost the exchequer over Rs 1,300 crore, whereas 5% subvention would have cost only Rs 565 crore. Mills are to repay the loans in 24 monthly installments after a cessation of 2 years.
Under the scheme, NPA units will be covered only if the state governments agree to give guarantee for their loans. The government has appointed State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank and Indian Bank as the nodal agencies for payment of interest to commercial banks. Nabard has been appointed the nodal agency for cooperative banks and RRBs. Arrears are currently as high as 17.4% of the total sugarcane supply this year, against only 2.9% last year.
Wherever necessary, term loan agreement and extension of personal guarantee agreement by the promoters will be applied. Under the scheme, the borrower will also have to provide an undertaking that the loan shall be exclusively used for the payment of cane price arrears of 2006-07 and 2007-08 sugar seasons.
The notification has fixed loan to sugar factories as equivalent to the hypothetical central excise duty payable on total production of sugar during 2006-07 and 2007-08 sugar seasons. It stated, “The central excise duty shall be net of sugar cess. In case a company has availed Cenvat, the sugar undertaking may avail the loan against such Cenvat amount also”
“Full interest subvention shall be provided to all scheduled commercial banks, regional rural banks and cooperative banks for the total duration of the loan, i.e., four years, including the 2-year moratorium. The interest subvention will be limited to 12% per annum, of which 5% will be met out of general Budget provisions of the central government and the remaining 7% from the Sugar Development Fund,” the notification said.
The factories must have accounts to get interest rate subsidy. It will be given only if the ‘account is regular’, that is, if the repayment of installment of principal is made after the expiry of cessation. Factories who do not have regular accounts will not be eligible for the interest subsidy until the accounts are made regular. Under the scheme, the interest will be debited by the banks on the facility to a sugar mill’s account and on receipt of the subsidy; the interest would be credited to the mill’s account.
The industry had demanded for deferred payment of excise duty for two years after that period. But this demand has not been accepted, mainly as the finance ministry has been dead against sugar mills — whether in the public, private or cooperative sector — getting easy loans under the financial assistance of the Centre which is extending farm sector subsidies. It had also clearly mentioned that NPA mills will be allowed to avail of the scheme only if the state governments stood guarantee.
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