The Modi government has initiated a multi-pronged strategy to improve the financial health of sugar industry that is reeling under the pressure of sugarcane arrears of over Rs 20,000 crore. The cabinet’s decision to offer concessional loans of over Rs 15,000 crore will not only help the industry diversify into ethanol production in a big manner, but also help it clear mounting sugarcane arrears.
The government will offer an interest subvention of 6% or half of the interest amount charged by the banks, a senior official with a private sugar mill told Financial Express Online requesting not to be named.
At present, 20% of our revenue comes from Ethanol production. It’s a significant source of our revenue. This additional income will also help the industry to clear sugarcane arrears, he said adding that the demand is more than the supply and this trend of demand outstripping the supply will be there for several years as the government planned to increase ethanol blending in petrol from the current target of 10% to 20%.
India is the second biggest producer of sugarcane in the world after Brazil. However, the surplus production dampens the sugar prices in the market making it difficult for the millers to earn enough to pay to sugarcane growers which are politically powerful in several states including Uttar Pradesh and Maharashtra.
Industry body Indian Sugar Mills Association (ISMA) welcomed the government’s decision saying that the additional loans of around Rs 15,000 crore could help in creation of another 300-400 crore litre of ethanol production capacity in the country.
It will help the sugar industry to reduce the surplus sugar production by diverting the surplus sugarcane into ethanol which could see a reduction of 1.5 to 2 million tonne of sugar production from next year.
Considering the current ethanol capacity of 380 crore litres, we will cross 10% blending with petrol in the next year itself. The year thereafter could see us substituting even 15% of country s petrol consumption, ISMA said in the statement.