In a move that could provide relief to the loss-making sugar industry, the government is likely to allow sugar mills to retain central excise on the commodity for three years from July this year.
The money will be retained by the industry interest-free and will be paid back in monthly instalments in three years from July 2010.
The proposal is scheduled for approval of the Cabinet, which did not hold its weekly meeting today owing to the absence of Prime Minister Manmohan Singh, who is attending the G-8 meeting on climate control in Germany.
This could be the second major concession package for the sugar industry in the current year. In March, the government had declared the creation of a 2 million tonne sugar buffer and an export subsidy at a flat rate of Rs 1,350 per tonne for sugar mills in coastal areas and Rs 1,450 per tonne for factories in northern states.
"Sugar millers pay a fixed excise duty of Rs 85 per quintal and any concession on this front will improve the cash flow of the industry and allow them to pay the huge sugarcane arrears to farmers and start crushing in the 2007-08 sugar season beginning this October," said an executive of a leading sugar company.
According to industry estimates, the sugar industry has piled up cane arrears of Rs 3,000 crore in the 2006-07 (October-September) season, primarily in Uttar Pradesh and Maharashtra, the two leading sugar-producing states. Sugar is a politically sensitive commodity with millions of farmers directly involved in sugarcane cultivation.
"The government is concerned about the fallout of the huge cane arrears, which may act as a disincentive and prevent farmers from sowing adequate sugarcane next year," said a government official.
The industry is facing a crisis following a glut in production, both domestically and globally. The country is estimated to produce more than 27 million tonnes this time, about 40 per cent higher than last year's 19.2 million tonnes, while demand has been stagnant at 19-19.5 million tonnes.
UP sugar millers say millers across the country had incurred losses this season, with realisations on sugar sales remaining significantly lower than the cost of production. "The cost of producing one quintal of sugar is Rs 1,500 while we are selling it for Rs 1,350, thereby incurring a loss of Rs 150 per quintal," said a UP sugar miller.
Sugar stocks continue to perform poorly at the stock exchange. At the Bombay Stock Exchange, the share price of Bajaj Hindusthan, the country's largest sugar producer, has fallen 5.2 per cent since last Thursday to close at Rs 162.35, while Balrampur Chini dropped 2.35 per cent to close at Rs 72.60.
Companies like Dhampur and Oudh Sugars registered a loss in the last quarter, while most sugar companies saw a sharp dip in profits, mainly due to rising input cost and declining realisations.
SWEETENERS FOR THE SUGAR INDUSTRY
Central excise relief to be considered part of tax liability of sugar mills for first three years
NABARD package to be reworked with extension of moratorium period by another three years to April 2010
Finance ministry to work out debt restructuring package for private sugar mills in consultation with food and public distribution department in three months
Central Sales Tax Act 1956 may be amended to include ethanol blending in the list of goods of special importance like cereals, coal, cotton, crude, oil, iron, steel, oilseeds, jute, pulses and sugar