Views of Geofin Comtrade Ltd on approval of interest-free loans for cash-strapped sugar mills

Ms. Pallavi Munankar, Research Analyst, Geofin Comtrade Ltd on the 'Cabinet Committee on Economic Affairs approval on interest-free loan for the cash-strapped sugar mills'.

Views on Sugar industry:

In order to help the drowning sugar industry, Cabinet Committee on Economic Affairs (CCEA) has approved the interest free loan worth Rs.6000 crores to sugar sector. The ministry plans to utilize sugar development fund to pay interest on the loans.

Sugar industry is facing a hard time as sugarcane dues that mills owes to the farmers have crossed Rs. 21,000 crores level, seem to be a tough goal with lower prices and dim exports picture.

In current scenario, the mills are sitting on huge unsold stocks and are continuously selling in the markets even at lower rates. As per the data from ISMA, India's sugar production upto 15th May 2015 stood at an eight-year high of 27.848 mn tonnes. Thus, there is an increase of 16 percent during the current season as compared to 24.003 mn tonnes produced in the same period last year. India is estimated to produce around 28 million tonnes of sugar for current season as against the demand of 24.5million tonnes. According to ISMA, sugar stocks at the end of this season in September is estimated to touch 10.30 million tonne, the highest in the last six sugar seasons.

The loan received by the mills will go for payment to farmers and the industry will still be saddled with the huge unsold stock and lower prices. Thus, this may not be the real solution for the industry's problem. What the industry wants is to utilize this fund of Rs. 6000 crore for creating a sugar buffer stock which may improve the sugar prices to a reasonable level so that the industry may stop making further losses. The government has allowed exports of sugar and offered subsidy, but looking at the surplus stock in the world and lower prices prevailing in the international market, even exports are not feasible. This leaves industry with no other alternative but to continue to hold hug stocks and incur losses until government may talk to the industry and come out with a reasonable solution to this problem.

Source : Equity Bulls

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