Policy

Sugar Industry seeks debt restructuring under S4A scheme

During the meeting with Union Finance Minister and PMO officials, ISMA called for modification in the threshold limit under the S4A scheme of debt restructuring, from Rs.500 crore to Rs.100 crore
Sugar Industry seeks debt restructuring under S4A scheme

The Indian sugar industry went through one of its worst financial crisis in the last 2-3 years, mainly on account of surplus sugar production and depressed sugar prices. In order to convey the problems and to explain that the sugar industry is still not fully out of its problems, a high level delegation of Indian Sugar Mills Association(ISMA) recently met Finance Minister Arun Jaitley. The ISMA urged that the Government and RBI should slightly modify the threshold limit under the ‘Scheme for Sustainable Structuring of Stressed Assets’ (S4A ) of debt restructuring, from Rs.500 crore to Rs.100 crore.

ISMA President T Sarita Reddy and Vice President Gaurav Goel met the Finance Minister. On behalf of ISMA they submitted that the Government and RBI should slightly modify the threshold limit under the S4A scheme of debt restructuring. ISMA also requested for re-schedulement of repayment of the Scheme for Extending Financial Assistance to Sugar Undertaking (SEFASU) loans and soft-loans and extension of interest subvention on Soft Loan for another 3 years.

This was followed up with further submissions before the Prime Minister’s Office, Food Ministry and the Department of Financial Services. Sarita Reddy, President ISMA and Abinash Verma, Director General, ISMA met the Principal Secretary to Prime Minister, Secretary, Department of Financial Services and Secretary Food where the problems of the industry were submitted. Request for debt restructuring under S4A scheme was reiterated.

The sugar prices in 2014-15 fell to its lowest in the last 6 years, when it touched the lowest of Rs.19 per kilo in Maharashtra and Rs.21 per kilo in UP. The industry was forced to borrow loans to pay cane price to the farmers. The Government of India also gave loans under SEFASU and thereafter Soft Loans. Rs.10,000 crore was borrowed by the industry under these 2 schemes only to pay cane price of farmers.

With some positive steps taken by the Government in last year, the sugar prices started improving from April, 2016, and allowed the industry to just about cover the cost of production. However, the extra borrowing in the last few years has seen the debt burden jump by almost 4 times to around Rs.50,000 crore currently. Despite improvement in sugar prices, it is still not sufficient to enable the industry to service all its debt at the same time. Additionally, Rs.10,000 crore of loans taken to pay cane price of farmers under the SEFASU and Soft-Loans have become due from the current season itself.

With a more balanced demand-supply position of sugar, one expects the sugar prices to be stable in the next year or so. However, with a big increase in SAP for sugarcane in the States in U.P., Punjab, Haryana and Uttarakhand, and low capacity utilization in Maharashtra, Karnataka and Telangana due to less availability of sugarcane because of drought in the last 2 years and low sugar recovery reported in States like Tamil Nadu, Andhra Pradesh etc., the all India average cost of production of sugar is up by around Rs.2 per kilo in the current sugar season 2016-17 over last year.

ISMA also met former Agriculture Minister Sharad Pawar to push forward their demand for debt restructuring and rescheduling of loan repayments. Pawar along with ISMA representative met Jaitley. In addition to the industry’s requests for financial restructuring and reschedulement of repayment of loans, the ethanol blending programme was also discussed. It was submitted therein that the ethanol prices should be restored at last year’s level and the benefit of excise duty waiver should be reconsidered and passed on to the ethanol manufacturers.

ISMA also submitted that with a high opening balance of 77 lakh tonnes, and also that with the domestic consumption reportedly being lower than last year, will ensure that there is more than adequate sugar for domestic requirement despite the lower sugar production as compared to last season. A healthy closing balance equivalent to more than 2 months consumption requirement will still be available for next season to meet the need of the country before the new season’s sugar is available in the market from November, 2017 so there was definitely no need at all to import any sugar.

According to ISMA, 462 sugar mills in the country have produced 80.90 lac tons of sugar, which is 0.4 percent higher as compared to last season’s production for the corresponding period. In 2015-16 SS, there were 481 sugar mills in operation on 31st December, 2015 and they had produced 80.56 lac tons of sugar till that date.

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BK Jha is the Special Correspondent of Rural & Marketing. Prior to this he has been associated with The Hindustan Times, Political and Business Daily along with many other media organisations.
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