Sugar mills to get Rs 420 cr for buffer stock

MUMBAI: The Reserve Bank of India has asked all commercial banks to sanction additional loan limits of Rs 420 crore to sugar mills for creation of buffer stock. The union government has taken a decision to create a buffer stock of 20 lakh tonne of sugar for one year effective from may 2007 following a glut in sugar cane yield this season.

While the sugar development fund under the union government will get a direct subsidy of Rs 378 crore, scheduled banks would have to release Rs 420 crore to sugar mills as the cost for creating buffer stock in the mills and also towards payment to sugar cane farmers.

Under the arrangement, the government will release subsidy of Rs 378 crore out of Sugar Development Fund while the banks will sanction the additional Rs 420 crore credit limits, RBI said in its notification. The entire amount of Rs 798 crore will be used exclusively by the sugar mills for payment of cane price to farmers. The government hopes the creation of buffer stock would help mills purchase the additional cane from farmers and also reduce the glut in the market.

A record bumper crop this year has pressurised the sugar prices affecting the sugar industry. Sugar production in India, the world's second largest producer of the sweetener, is likely to cross 28 million tonne in 2006-07 season, against 19.2 million tonne in the previous year.

For operation of the scheme, it would be necessary for sugar mills to segregate the stocks meant for buffer stock operations from the stock of sugar already held by them. The credit of Rs 420 crore that the mills will get from the banks is a 100% loan for which the mills don't have to arrange for 15% margin. This credit is to be used by the mills for transport, stocking, and payment to farmers.