India gives loans to sugar mills to help clear $3.3 billion owed to farmers

Mumbai/New Delhi: India has approved interest-free loans for cash-strapped sugar mills to help them pay nearly 30% of the record $3.3 billion they owe cane farmers, many of whom are struggling with huge debts as the first country-wide drought in six years looms.

Mills in India, the world's biggest sugar producer after Brazil, have been lobbying the government for months seeking relief as prices of the sweetener have fallen below the cost of production due to ample supplies.

Sugar cane prices, meanwhile, have jumped over the years due to the populist policies of state governments to raise minimum support prices for farmers.

The federal government earlier in 2015 approved a subsidy to export raw sugar, although that failed to boost shipments amid a global glut. On Wednesday, a ministerial committee chaired by Prime Minister Narendra Modi agreed to provide a loan of 60 billion Indian rupees ($940 million) to mills for which the government will bear the interest for a year.

"This is a significant immediate step to provide relief to farmers," Road Transport Minister Nitin Gadkari told reporters after the committee's meeting, which also cleared a proposal to raise imports of pulses to cool prices.

Farmers welcomed the move, and shares of companies like Bajaj Hindusthan Sugar Ltd, Sree Renuka Sugars Ltd, Dhampur Sugar Mills Ltd, Andhra Sugars Ltd, Mawana Sugar and Balrampur Chini Mills Ltd jumped as much as 17%.

"The government should make sure that mills pay us fair and remunerative price," said Raghunath Patil, a farmer from top sugar producing Maharashtra state. "If mills pay us in the next few weeks, it will help us buy seeds and fertilisers."

A senior industry official said the loan will do little to prop up sugar prices critical to sustaining the industry.

"Instead of the loan, the government should have created a buffer stock," said the official, who declined to be named.

India, the world's biggest sugar consumer, is likely to start the 2015/16 marketing year starting October 1 with carry-forward stocks of 10.3 million tonnes, up 37% from the current year, an industry body said last week.

The country is likely to produce 28.5 million tonnes of sugar in the current marketing year ending on Sept. 30, nearly 4.5 million tonnes higher than local requirement. Exports could be just 700,000-800,000 tonnes.

($1 = 63.8500 rupees)