UP govt urges Centre, RBI to infuse fresh liqudity as mills face liquidity crunch

Cane dues pile up to over Rs 13,000 crore as mills face liquidy crunch. The Uttar Pradesh government has written to the Reserve Bank of India (RBI) and finance secretary, urging them to remove the sugar sector from the central bank’s negative list to facilitate easy cash credit to the sugar mills, which will allow them to clear the outstanding cane dues of the farmers.

Source by: Deepa Jainani| FE | 23 Apr, 2020 | Edited by : Sugar Times | 23 Apr, 2020 

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Image: For Representation Only

Lucknow, Apr 23 : With sugar consumption falling by nearly a million tonnes (MT) following the lockdown and the consequent working capital squeeze for the sugar mills, the Uttar Pradesh government has urged the Centre to remove the sugar sector from the Reserve Bank of India’s (RBI) negative list and sought infusion of fresh liquidity and working capital as sugar mills are struggling to pay cane arrears of about Rs 16,000 crore as sales have halved and global prices have fallen. The maximum dues are in Uttar Pradesh, followed by Karnataka. The mills in Maharashtra have paid 90% of their arrears.

Vipin K Dwivedi
UP Principal Secretary, Sri Sanjay R. Bhoosreddy

UP sugar industry and sugarcane development principal secretary Sanjay R Bhoosreddy has written separate letters to the union financial services secretary and the RBI referring to the lockdown matrix and the problems being faced by the sugar industry and the resultant adverse impact on sugar demand, supply, storage space, exhaustion of the cash credit limit (CCL) etc. He urged to remov the sugar sector from the negative list and also revisiting the credit norms for the industry, so that mills could overcome the working capital issue and settle their cane outstanding promptly.

As per reports by FE, Bhoosreddy said since 2017, when the sugar industry was placed in the negative list, the Union government has taken many measures to stabilise the sector and the situation is not as bad as it was then. “The mills which have positive networth have got enough CCL but those which have a negative networth or are under restructuring are facing enormous problems.

Now that the GOI has fixed the base price of sugar and most of the mills have set up distilleries too, to augment their business, the scenario has changed. We have urged the GOI and the RBI to take a relook at those mills that have a negative networth since they have sufficient sugar stocks with them. The banks can hypothecate their sugar stocks and give them CCL. The valuation of sugar can be done at the minimum sale price (MSP) of sugar determined by GoI,” he said, adding that the negative fixation should end, especially in view of the national crisis that has unfolded in the form of coronavirus. “it is ultimately the farmer who are facing the most difficult times,” he added.

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Sugar output increases by 26% in Oct-Dec of current season: ISMAThe Indian Sugar Mills Association (ISMA) had also written to the different central government departments and the PMO seeking a slew relief to combat the considerable dip in sugar offtake.

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Abinash Verma. ISMA

According to ISMA director general Abinash Verma, following the lockdown, nearly Rs 70,000 crore worth of working capital was stuck on the pan India basis in stocks, including sugar and ethanol, which he termed as unprecedented. He further added “Currently, banks and financial institutions lend sugar mills money at a margin of 15% against sugar and 25% against ethanol. We want it to be at a uniform rate of 10%”

 “We have suggested to the Centre that whatever is due from the government to the sugar industry in the form of subsidies, including buffer subsidy, export subsidy, interest of soft loan subsidy etc over the past two years, should be allocated to the food ministry in a budgetary package, and that be released against mills’ claims,” Verma reported by Business Standard.

Besides, the repayment under the soft loan scheme, under which the mills had availed of nearly Rs 7,500 crore to pay off farmers, has started from March 2020. “Since, there was 7 per cent interest subvention for one year, we have requested that the subvention window be increased by another year,” he said adding it would give cash flow relief of about Rs 500 crore to millers in these “very special circumstances.”

Meanwhile, ISMA has urged bankers to reduce the working capital margin requirement to 10 per cent on both sugar and ethanol from the current levels of 85 per cent and 75 per cent respectively.

“In fact, the RBI has asked banks to look at reducing the margin requirement. Besides, the prices of sugar and ethanol are ascertained by the government. As such, there is no possibility of any downside in their realisation and subsequent repayment of loans to banks,” Verma added.

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Recently, UP Sugar Mills Association (UPSMA) had also written a letter to the union food and public distribution secretary and prayed for urgent clearance of pending claims for buffer subsidy, apart from the allocation of special fund to clear export subsidy dues for which claims were pending with the government.