The government on Wednesday reiterated its pro-farmer stance, with the Cabinet clearing crucial sops for the sugar sector at a time when the entire sugar industry is under stress. The Cabinet approved interest-free loans for the sector to the tune of Rs 6,000 crore.
The sugar industry owes around Rs 21,000 crore to farmers in form of cane dues. What lends the decision a pro-farmer tag is the fact that this amount will be going directly to the farmers, not to the mills.
The Cabinet Committee of Economic Affairs (CCEA) has provided a one-year moratorium on this loan and will bear the interest subvention cost to the extent of Rs 600 crore. To ensure that farmers are paid their dues expeditiously, the government has mandated banks to pay directly to farmers on behalf of the mills. Subsequent balance, if any, will then be credited into the mills accounts. The government will bear the interest cost of the loan for one year, unlike the previous years where the government used to bear the interest cost for five years.
Following the Cabinet decision, the stocks of sugar companies skyrocketed. Sakthi Sugars and Bajaj Hindusthan closed with gains of 11-12 per cent while Shree Renuka Sugars rose 7.6 per cent.
Despite the cheer in the sugar stocks, the industry body Indian Sugar Mills Association (ISMA) refused to join the chorus. Sugar manufacturers said that there are many more issues which need immediate attention.
Abinash Verma, president of ISMA, told NDTV, "This loan is for an unproductive purpose and will not help the mills. It will take around 8-12 months for farmers to get the money."
The industry has been asking the government to create a buffer stock of 2 million tonnes to help them clear the dues, which is not on the government's agenda at the moment.
But the government is paying attention to the tepid sugar manufacturer response in paying the cane dues to the farmers. The interest-free loan move is aimed at carrying out a political course correction as it may help the farmers getting their dues.
In another decision which sends the same message, the Cabinet allowed companies like Madras Fertilizers, Mangalore Chemicals & Fertilisers (MCF) and Southern Petrochemical Industries Corporation to continue using naphtha for the production of urea till gas connectivity and its availability to these fertiliser manufacturing units is ensured.
In 2007, the UPA government had decided that all naphtha-based fertiliser plants will have to convert to gas-based operations by the end of 2014.
So far there has been little progress in providing gas to these fertiliser plants. The central government had earlier clarified that those plants which continue with naphtha for production of ammonia and urea would not be eligible for subsidy after September 30, 2014.
MCF had stopped operations at its Mangalore plant on October 1, 2014, and restarted operations in January this year only after the Centre gave a go-ahead to start the plant with naphtha as the feedstock for next 100 days.
These three naphtha-based urea units, with an annual capacity of 14.88 lakh metric tonnes, will cater to the demand in the southern states of Karnataka, Tamil Nadu and Kerala (around 22.5 lakh MT per annum) throughout the year.
If these three units would have shut down, then the requirement of the southern region would have had to be sourced mainly through imports.
The government has timed its decision well. Kharif sowing is on in most of south India and the continuation of operation of these three units would substantially ease the problems of urea supply.
Wednesday's Cabinet decisions on urea production and loan sops to sugar mills indicate a delicate balancing act by the government - it is pushing pro-farmer decisions but cleverly averting a situation which may create doubts in the industry that Acche Din of reforms are over.
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