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PM may unveil sugar package on I-Day — Loans to mills to be rescheduled

Harish Damodaran

New Delhi, Aug. 3

THE much-talked about `package' for the sugar industry is almost ready, with the Prime Minister, Dr Manmohan Singh, likely to announce it in his maiden Independence Day address.

The main components of the package, official sources said, include rescheduling of all loans outstanding to sugar mills as on March 31, 2004 and allowing State Governments to raise additional open market borrowings (OMB) to enable factories to clear their cane payment dues for the 2003-04 season (October-September) and also up to three-fourths of wage arrears.

The sources said that the broad framework of the package was discussed at a meeting between the Finance Minister, Mr P. Chidambaram, and the Food and Agriculture Minister, Mr Sharad Pawar, here on Monday.

Others who attended the hour-long meeting included the Finance Secretary, Mr D.C. Gupta; the Expenditure Secretary, Mr D. Swarup; the Food and Public Distribution Secretary, Mr S.K. Tuteja; the Executive Director of Reserve Bank of India, Mr A.V. Sardesai; and the Chairperson of the National Bank for Agriculture and Rural Development (Nabard), Ms Ranjana Kumar.

The latest meeting, the sources added, was a follow-up of an earlier meeting that the Prime Minister had himself convened on July 23 with Mr Chidambaram and Mr Pawar.

The proposed loan rescheduling involves clubbing both the interest as well principal component of all loans to mills outstanding as on March 31, 2004 and providing for repayment of the amount thus arrived over a 10-year period, inclusive of an initial moratorium period of three years. The outstanding loan figure is said to be in the region of Rs 4,000 crore.

States will also be given the leeway to mobilise additional OMBs, the monies from which would be on-lent to mills at a concessional 2 per cent interest to enable them to clear Statutory Minimum Price (SMP) arrears for the 2003-04 season.

The effective cost for the States on the OMBs would be limited to 4 per cent, by way of the Centre footing the additional interest liability arising from the higher coupon rate on the bonds to be floated.

Thus, if the OMBs are raised at, say, 6 per cent, the Centre would fork out an interest subsidy of 2 per cent, reducing the effective cost to the States at 4 per cent. The latter would, in turn, on-lend to the mills at 2 per cent.

The Centre had, in fact, allowed the Maharashtra Government to mobilise additional OMBs to the tune of Rs 300 crore last year, which was used to clear cane arrears for the previous 2002-03 season.

"A similar facility would be given this time as well to those States that seek to avail themselves of the same. It is also proposed to allow the monies to be raised through this route to finance up to 75 per cent of wage arrears and also meet the fixed overheads of mills that would not go to production in the coming season due to inadequate sugar cane availability," the sources said.

On the other hand, in the case of mills that are in a position to undertake crushing, steps would be taken to ensure that they are able to access pre-seasonal loans. "This would be subject to proper scrutiny by the Nabard. The whole objective of the present exercise is to unclog credit channels to the industry. It will particularly provide breathing space to those mills that are struggling to repay existing loans and for this very reason are not eligible to obtain fresh credit to commence crushing in the new season," the sources pointed out.

The sources added that the operational details of the package would be worked out over the next few days, well in time for the Prime Minister's August 15 address and also the crucial assembly elections due in States such as Maharashtra in early-October.

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