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NEW DELHI, Nov. 6

THE Centre is likely to come out with a package to bail out the sugar industry in Maharashtra, currently reeling under the impact of declining open market realisations and huge unsold inventories.

The Finance Minister, Mr Jaswant Singh, has already entrusted his Advisor, Dr Vijay Kelkar, with the task of formulating a comprehensive relief package in a week's time. In fact, Dr Kelkar was specifically sent to Baramati to meet the Maratha strongman, Mr Sharad Pawar, and elicit his views on the crisis being faced by mills in the State.

The meeting, held on November 4, was also attended by the State's Sugar Commissioner and representatives of the Maharashtra State Cooperative Sugar Factories' Federation Ltd. (MSCSFFL) and the Maharashtra State Cooperative Bank (MSCB).

The core issue that figured in the two-and-a-half hour long meeting was the huge sugar stocks piled up in the godowns of mills in the State — roughly 43 lakh tonnes as on October 1 (the start of the new 2002-03 crushing season), valued at over Rs 5,300 crore at production cost. Further, mills are said to be incurring additional carrying cost of Rs 16 per quintal per month.

The main relief that was sought was with regard to obtaining adequate bank finance and tackling the problem of short margins being faced by most mills due to the crash in open market sugar prices. Mills are now realising around Rs 1,050 per quintal on the free sale sugar they are offloading in the open market, which is below even the average realisation of Rs 1,177 per quintal on levy sugar that is being supplied for the public distribution system.

The extent to which prices have declined is also reflected in the reference ex-mill price being used by MSCB to value the stocks lying with factories. The ex-mill price, which was Rs 1,320 per quintal for October-December 2001, has come down to Rs 1,270 per quintal for January-March 2002, Rs 1,235 per quintal for April-June 2002, Rs 1,185 per quintal for the July-September 2002 quarter and 1,115 per quintal for the present October-December quarter.

Considering that factories can borrow only up to 85 per cent of the value of their stocks, they would, in October 2001, have been able to take a loan of about Rs 1,120 for every quintal of sugar pledged. But the fact that the same quintal is today fetching just Rs 1,050, it means that the current realisations do not even cover the principal amount, let alone allowing factories to provide for the 15 per cent margin money.

``Since all mills have run into short margins, what we have sought is to convert the aggregate short margin amount to medium term loans of up to seven years. We want specific refinance assurance from Nabard to enable MSCB to provide fresh pre-seasonal loans to mills as well as to undertake the conversion'', a MSCSFFL official said. The amount involved here is said to be upwards of Rs 500 crore, for which the State Government is already willing to provide guarantee.

The industry has also sought Nabard's approval for relaxation of existing ceilings applicable on bank finance to sugar mills. Currently, the MSCB's exposure to the sugar industry constitutes roughly 62 per cent of its total advances, so much so that MSCB is often referred to as the `Maharashtra Sugar and Cotton Bank'. ``We want the 40 per cent ceiling for agricultural lending to be relaxed for at least one more season, which will ensure adequate bank credit to the mills'', the official added.

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