With sugar consumption falling by nearly a million tonnes (MT) following the lockdown and the consequent working capital squeeze for the sugar mills, the Uttar Pradesh government has urged the Centre to remove the sugar sector from the Reserve Bank of India's (RBI) negative list and sought infusion of fresh liquidity and working capital.
The Indian Sugar Mills Association (ISMA) had also written to the different central government departments and the Prime Minister’s Office (PMO) seeking a slew of reliefs for the beleaguered sector, including the urgent infusion of liquidity to the sector to tide over the crisis borne out of the considerable dip in sugar offtake.
UP sugar industry and sugarcane development principal secretary Sanjay R Bhoosreddy has written separate letters to the union financial services secretary and the RBI referring to the problems being faced by the sugar industry owing to the lockdown and the resultant adverse impact on sugar demand, supply, storage space, exhaustion of the cash credit limit (CCL) etc.
He said these factors were collectively having an adverse impact on payments to the sugarcane farmers in the state.
After the RBI put the domestic sugar sector in the negative list owing to the sharp fluctuations in the sugar market dynamics and prices in the recent years, the bankers have been rather reluctant to allow millers to avail the CCL facility or rejecting their loan applications citing tough regulatory norms, he added.
Referring to the lockdown matrix, Bhoosreddy has urged the Centre and the RBI to consider removing the sugar sector from the negative list and also revisiting the credit norms for the industry, so that mills could overcome the working capital issue and settle their cane outstanding promptly.
According to ISMA director general Abinash Verma, following the lockdown, nearly Rs 70,000 crore worth of working capital was stuck on the pan India basis in stocks, including sugar and ethanol, which he termed as unprecedented.
“We have suggested to the Centre that whatever is due from the government to the sugar industry in the form of subsidies, including buffer subsidy, export subsidy, interest of soft loan subsidy etc over the past two years, should be allocated to the food ministry in a budgetary package, and that be released against mills’ claims,” Verma told Business Standard.
Besides, the repayment under the soft loan scheme, under which the mills had availed of nearly Rs 7,500 crore to pay off farmers, has started from March 2020. “Since, there was 7 per cent interest subvention for one year, we have requested that the subvention window be increased by another year,” he said adding it would give cash flow relief of about Rs 500 crore to millers in these “very special circumstances.”
Meanwhile, ISMA has urged bankers to reduce the working capital margin requirement to 10 per cent on both sugar and ethanol from the current levels of 85 per cent and 75 per cent respectively.
“In fact, the RBI has asked banks to look at reducing the margin requirement. Besides, the prices of sugar and ethanol are ascertained by the government. As such, there is no possibility of any downside in their realisation and subsequent repayment of loans to banks,” Verma added.
Recently, UP Sugar Mills Association (UPSMA) had also written a letter to the union food and public distribution secretary and prayed for urgent clearance of pending claims for buffer subsidy, apart from the allocation of special fund to clear export subsidy dues for which claims were pending with the government.
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