Financial Daily from THE HINDU group of publications
Friday, May 27, 2005
Agri-Biz & Commodities
Bail-out package for coffee, tea growers
New Delhi , May 26
THE Cabinet Committee of Economic Affairs (CCEA) on Thursday approved a relief package for the coffee industry that includes sharing the interest burden on Special Coffee Term Loan (SCTL) of the growers and writing off coffee developmental loans.
It also approved a Rs 93-crore package for the tea industry aimed at promoting modernisation and development of the plantation crop. The funds would be made available from the special fund created with collections of additional excise duty on tea.
Coffee growers who had availed themselves of SCTL in 2002 will now have to repay one third of the total interest burden of Rs 287.1 crore by June-end, with the rest of the amount being shared equally between the Government and the banks. While the Government would pay one-third of the interest, banks would have to take a hit by one-third interest rates.
The Government will release the subsidy to the banks after growers pay their share by June-end.
Announcing the measures, the Finance Minister, Mr P. Chidambaram said, "The approved coffee packaged aims at debt amelioration, and would bail out the industry from its current crisis. The package meant for the coffee industry would provide much needed financial relief to the coffee growers, who are facing financial difficulties."
"On June 30, when the moratorium on payment of interest and principal of the SCTL would have ended, about 40,000 coffee growers would have turned NPAs had this relief package not come through. Having turned NPAs, most of these planters would not have been able to get credit for next year," Mr Anil Bhandari, President, United Planters' Association of Southern India (UPASI), told Business Line.
"The principal of Rs 680 crore on the SCTL taken in 2002 by the coffee planters had an interest of about Rs 300 crore as on date. The interest was too huge for planters and we had approached the Commerce Ministry on this issue," he added terming the package a "big stabilisation move by the Government."
Additionally, the Government would recommend banks to lower the interest rates charged on SCTL from the existing 11 per cent to 9 per cent or the rate applicable to agriculture sector, during the remaining repayment period of SCTL.
The Government will also write off coffee developmental loans along with interest amounting to around Rs 24 crore due from the Coffee Board to the Government. The Coffee Board, in turn, will waive off old developmental loans amounting to around Rs 64.59 crore extended by it to growers (with land holdings below ten hectares).
Apart from the above moves, coffee growers will continue to avail themselves of the interest subsidy scheme on working capital loans till the end of Tenth Plan Period.
The small growers (below ten hectare) get an interest subsidy of 5 per cent and large growers get an interest subsidy of 3 per cent on their working capital loans.
However, those growers who have derived benefits from the reduced interest burden on SCTL during the moratorium period will receive a subsidy of 4 per cent (small growers) and 2 per cent (large growers) respectively.
The Commerce Ministry would receive an additional budgetary allocation of Rs 95.7 crore during 2005-06 to meet the Government's share of interest on SCTL. The fund will be routed to the growers' SCTL accounts in the concerned banks through the Coffee Board.
On the other hand, the schemes for tea growers would be implemented by Tea Board during the remaining period of the 10th Plan period, Mr Chidambaram said. "The Government had collected Rs 130 crore through the additional excise duty levied about two years ago. This amount was to be ploughed back to the tea industry," said Mr Bhandari.
From that, Rs 65 crore would be extended as subsidy for orthodox tea production, while the remaining Rs 28 crore would meet the actual deficits of the tea research and development institutions, viz Tea Research Association at Tocklai in Assam and UPASI Tea Research Foundation.
"The tea industry has realised that the future lies in orthodox tea and not CTC tea. Both these moves would prove to be very good instruments for the tea industry which had been in trouble," Mr Bhandari said.
The subsidy for production of orthodox tea is an one-time scheme that would be valid from January 1, 2005 to March 31, 2007.
CCEA has approved the subsidy scheme for production of orthodox tea at Rs 3 a kg for leaf grades and Rs 2 a kg for dust grades for existing levels of production with additional incentives at Rs 2 a kg for the incremental volume over the previous year from January 1, 2005 to March 31, 2007. The actual deficit of two institutions would be met for a period of five years from 2004-05.
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