The Hindu Business Line : Credit-starved UP sugar mills piling up payment arrears

Bitter part
Mills are likely to crush about 780 lakh tonnes of cane, involving payment of Rs 9,800 crore
There is still Rs 3,500 crore of disbursement to be made.

New Delhi March 18 With barely three weeks to go for the first phase of a month-long electoral battle to the Uttar Pradesh Assembly, payment of arrears to sugarcane growers is expected to emerge as a key campaign issue.

As on March 15, mills in the State have accumulated payment dues of Rs 395 crore for the current crushing season (October-September) - a figure that is bound to mount due to drying up of cash credit limits from banks.

According to data compiled by the Cane Commissioner's office at Lucknow, factories have so far disbursed Rs 6,325 crore to growers, against Rs 6,720 crore they were required to pay within 14 days after taking delivery of cane.

Of the unpaid amount of Rs 395 crore, about Rs 175 crore is due from private mills, with the public sector and co-operative units accounting for the rest.

Among the major defaulters are Mr U.K. Modi's Malakpur (Baghpat) and Modi Nagar (Ghaziabad) plants with combined dues of Rs 71 crore; the Hargaon (Sitapur) unit of the K.K. Birla Group's Oudh Sugar Mills (Rs 15 crore); the Barkatpur (Bijnor) mill of Mr G.R. Morarka's Dwarikesh Sugar Industries (Rs 12.70 crore); and Mr Jawahar Lal Jaiswal's JHV Sugar at Maharajganj (Rs 11.50 crore).

"The arrears have really piled up only in the last one-and-a-half months. At the present rate, they could double at election time," sources told Business Line.

The reason, they added, is the credit squeeze on mills resulting from the falling value of their inventories.

Banks extend cash credit limits to mills up to 85 per cent of the value of stocks assessed at the previous month's average sugar realisations.

"In October, ex-factory prices ruled at Rs 1,700 a quintal, after which they fell to around Rs 1,600 in November, Rs 1,580 in December, Rs 1,500 in January, Rs 1,450 in February and Rs 1,400-1,440 this month," the sources said.

"This has affected the drawing power of mills, since they can only borrow about Rs 1,230 per quintal against their stocks, whereas the equivalent gate-cost of cane alone (inclusive of purchase tax, society commission, etc.,) is over Rs 1,400."

During this season, mills in UP are likely to run well up to May, crushing about 780 lakh tonnes of cane, involving payment of Rs 9,800 crore to growers.

"There is still Rs 3,500 crore of disbursement to be made. Mobilising working capital for this will be a huge task," the sources said.

The industry has been lobbying with the Centre to ease its liquidity crunch through creation of a 20 lt buffer stock, on which the interest and storage costs would be met by the Exchequer.

But the Finance Ministry has opposed it, fearing an increase in prices; since sugar has a disproportionate 3.62 per cent weightage in the wholesale price index, even a mild rise would push up the overall inflation numbers.