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Extra interest-free loan for sugar mills to pay cane arrears

New Delhi, Jun 23 (PTI) : The Union government on Monday decided to provide additional interest-free loan of up to Rs 4,400 crore to cash-starved sugar industry for paying cane arrears.

In order to bail out sugar mills that are unable to pay Rs 11,000 crore dues to sugarcane growers, the government also decided to increase the sugar import duty to 40 per cent from the existing 15 per cent and extend subsidy of Rs 3,300 per tonne on export till September this year.

Efforts will also be made to ensure 10 per cent ethanol blending with petrol.

These decisions were taken at a high-level meeting called by Food Minister Ram Vilas Paswan following the Prime Minister’s direction.

The Principal Secretary to the PM, Nripendra Misra, and Cabinet Secretary Ajit Seth were also present in the meeting.

After the meeting, Paswan said: “We have taken four key decisions. We have decided to extend the interest-free loan given against excise duty paid by sugar mills for five years instead of three years.”

Mills can avail themselves of additional interest-free loans of up to Rs 4,400 crore from banks, he said, adding that this will improve their cash flow to make cane payments.

The minister said the department is yet to calculate the exact interest-free loans to be provided to the industry.

In December, the Centre had approved Rs 6,600 crore interest-free loans for the sugar industry exclusively for clearing sugarcane arrears. It decided to give loans via banks equivalent to the excise duty paid by the mills in the past three years.

“These decisions will be announced subject to the condition that mills give guarantee that they will clear Rs 11,000 crore sugarcane arrears at the earliest,” Paswan told reporters.

”We don’t have any problems to announce these incentives formally if millers are ready to make payments. If they give assurance today, we will announce incentives today itself.”

He said some of the decisions would be notified by ministries concerned, while some require the Cabinet nod.

Besides Paswan, Transport Minister Nitin Gadkari, Commerce Minister Nirmala Sitharaman, Petroleum Minister Dharmendra Pradhan, Women and Child Development Minister Maneka Gandhi, MSME Minister Kalraj Mishra, among others, were present in the meeting.

Besides interest-free loan, Paswan said, “We have decided to increase the sugar import duty to 40 per cent from the current 15 per cent and extend the sugar export incentive of Rs 3,300 per tonne till September this year.”

Paswan said that the Petroleum Minister has assured 10 per cent ethanol blending with petrol. Currently, ethanol blending is not even two per cent.

Expressing concern over mounting cane arrears, Paswan said, “While the Centre fixes the cane price, some states are fixing higher prices that are putting burden on millers. There should be a holistic view on pricing.”

The sugar industry has been facing a cash crunch due to higher cost of production and lower selling prices in the wake of surplus output over the past few years.

Currently, sugarcane arrears stand at about Rs 11,000 crore across the country, with the maximum of Rs 7,200 crore in Uttar Pradesh.

Mills say they are facing a cash crunch as domestic prices have slipped below the cost of production, hurting their profits. They also fear domestic prices could fall further if cheaper imports are not curbed.


Cash-strapped VMC pins hopes on Hudco, State


Andhra Pradesh


macro economics

central bank



local authority

The Vijayawada Municipal Corporation is pinning a lot of hopes on professional tax, Hudco loan of Rs.75 crore, and State government loan of Rs.57 crore to improve its financial health.

The authorities also hope that the VMC will have a “respite” if the Union Bank of India loan is cleared and the JNNURM projects are closed.

Addressing a press conference here on Thursday, Municipal Commissioner G.S. Panda Das said the VMC required Rs.152 crore to “close all the JNNURM projects” by March 2014. Of this, Rs.75 crore would be Hudco loan and Rs.57 crore State government loan. The balance of Rs.20 crore would have to be pooled by the corporation from other sources, he said.

The VMC was expecting a revenue of Rs.10 crore to Rs.15 crore from the UGD and water connections this year. The professional tax would fetch Rs.27 crore. The corporation was hiring the services of a retired Commercial Tax officer to improve the professional tax collection.

UBI loan

The UBI loan would be cleared in another one and half years. At present, the VMC was shelling out Rs. 2.47 crore per quarter towards UBI loan. The collection of beneficiary contribution was also improving. The VMC could collect Rs.3.8 crore in last three months. The beneficiaries were asked to pay their contribution in lump sum for allotting the houses under the JNNURM, he said.

The JNNURM projects, hitherto, had an effect on the general funds. The closure would ease the burden on general funds and help in streamlining the statutory payments/liabilities such as ESI and EPF, he hoped.

Keywords: Vijayawada Municipal Corporation, Union Bank of India loan, JNNURM projects


VMC presents optimistic budget

VMC asks State to share Rs. 132-crore burden

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Indian banks must finance the poor to prevent another subprime loan crisis

India is trying hard to get the rural poor access to bank accounts and loans. It is a laudable aim. As Reuters reports, only 35% of Indians have bank accounts. The country’s farmers are incredibly unproductive as they do not have the cash to invest in upgrading processes or machinery. That inefficiency holds the economy back. Bank loans could be a partial solution.

But Indian banks may be reluctant to help. Lending cash to poor farmers is high risk. This makes lenders want to charge extremely high interest rates on loans to compensate for likely high defaults caused by bad harvests, monsoon damage, or farmers simply not understanding the economics of interest rates and repayment schedules.

The gap in the market created by Indian banks’ reluctance to lend to the poor has been filled before, but at times catastrophically.

Several years ago, hoards of small, specially created lending companies rushed into “micro-credit” to dole out small, high interest loans to the rural poor. The result was India’s own version of America’s subprime real estate crisis. Attracted by the high interest yields on micro-loans, and encouraged by investment banks who were attracted by the possibility of slicing, dicing and selling the debt, Indian banks and private micro-credit companies over-lent. By 2010, the micro-credit industry was on the verge of collapse, and banks greatly reduced their exposure to the small lenders.

Heartbreaking reports such as this one showed how some Indian borrowers were driven to suicide after being aggressively chased for loans they could not repay by some of the more rapacious credit providers. The debacle led one state, Andra Pradesh, to change its rules, forcing lenders to write off a large chunk of their rural debts.

Now, as the Economist notes here, micro-lending companies are experiencing a revival. Investors are supporting the industry again. There is new hope because Indian regulators have taken steps to clean up micro-finance.

The Reserve Bank of India has published guidelines for micro-financiers and set up a licensing system. Interest rates have been capped at 10-12 percentage points above lenders’ borrowing costs, after the rates they charged customers soared to 28-30% in 2010. And companies are barred from lending to anyone with more than one outstanding loan.

The revival looks dangerous, however, as the new rules may not prevent old problems re-occurring.

Vijay Mahajan, the president of the Microfinance Institutions Network of India, outlines here how small micro-lenders may have to push farmers’ borrowing costs back into the mid 20%’s again. They need to charge this much to make a profit.

Because Indian interest rates are already high and independent micro-finance companies are considered a high credit risk, these small lenders have to borrow at double-digit rates themselves. To make money, allowing for farmers’ high defaults, they have to pile on the interest. And they can do so while fitting in with the RBI’s new caps on lending rates. If a micro lender borrows at a 14% annual rate, it can charge 26% to its customers.

Mahajan says breaking even is “a function of scale….Assuming the [micro-lenders’] borrowing rates are at around 13-14%, if you have a million customers, you could break even [by lending] at 24%….Anything less than [half a million customers], you will not really break even at 26%.”

The risk, then, is that micro-credit firms and poor farmers find themselves back where they were three years ago.

The solution is for bigger Indian banks to step in and help. Mahajan’s comments imply that large banks, who can borrow cheaply and build rural customer bases quickly if they put their minds to it, could lend to farmers at more palatable rates than the micro-lenders can manage. Hopefully the government can persuade them to try.

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Cash transfer debut today

New Delhi, Dec. 31: Over two lakh beneficiaries of welfare schemes will from New Year’s Day see the money flow straight into their bank accounts with the launch of the Centre’s cash-transfer scheme, a “game-changer” to replace a system under which it costs Rs 3 to send a rupee.

The transfer scheme will be launched tomorrow in 20 districts and cover seven welfare plans, mostly stipends for weaker sections. But food, fertiliser and fuel subsidies ‘ which guzzle the bulk of subsidies the direct transfers aim to reduce ‘ will not be covered in the initial phase.

The 20 districts are part of a larger batch of 43 spread over 15 states where the scheme will be launched by March to cover BPL families, but none will be in Bengal. The states chosen are those that have made rapid progress in issuing Aadhaar, the multi-purpose unique identity cards.

The spread of bank branches was another key factor. The states are Punjab, Delhi, Madhya Pradesh, Rajasthan, Jharkhand, Haryana, Tamil Nadu, Andhra, Maharashtra, Kerala, Karnataka, Goa, Jammu and Kashmir, Daman and Diu and Puducherry.

“We are proceeding with caution, 20 districts from January 1. In the seven schemes, the money will be transferred using the UIDAI platform,” finance minister P. Chidambaram said today. UIDAI or the Unique Identification Authority of India is in charge of the Aadhaar project.

The seven welfare plans include matric scholarships for SCs, STs and OBCs, Indira Gandhi Matritva Sahayata Yojana (for pregnant women), Dhanalakshmi scheme and stipends for SC/ST job-seekers.

Other than the first 20 districts, the scheme will be rolled out in 11 districts from February 1 and 12 more from March 1. “We have been moving with great caution so we don’t make mistakes,” Chidambaram said, calling the scheme a “game-changer” in governance. All districts in the country will be covered by end 2013, he added.

The payments will be transferred directly to the beneficiaries’ Aadhaar-linked bank accounts ‘ those opened with Aadhaar cards as ID proof.

Those who don’t have such cards but are eligible for the benefits will also get the payments through “bank correspondents”, officially appointed intermediaries who will receive the payments in their accounts and then transfer it to the eventual beneficiaries against receipt papers.

Anganwadi (social health group) workers, kirana store owners, members of co-operative societies are among some who could be the intermediaries. The aim is to phase out such intermediaries as more Aadhaar cards are issued.

On food and fertiliser subsidies, the current system will continue, Chidambaram said. “At the moment, there is no intention to transfer subsides on food, fertiliser, diesel and kerosene. Here, existing system will continue because there are complex issues.”

On LPG, which accounts for the bulk of fuel subsidies, the minister said: “I don’t know when it will be covered.”

Prime Minister Manmohan Singh last month said the scheme was aimed at ensuring that the subsidies of over Rs 3 lakh crore reach the right people. Finance ministry officials said it costs the government Rs 3 to transfer one rupee to the pockets of beneficiaries. The rest is lost in administrative expenses, waste and corruption.

Poll factors are at play, too. The UPA hopes to make the cash transfers a key plank in the 2014 polls, hoping the scheme will help it win voter support, much like the NREGA, the rural job scheme, and farm loan waivers had helped the ruling alliance cruise to victory in 2009.

Advocates of the scheme have cited a recent World Bank study that suggests a direct link between cash transfers and voting behaviour. The study found that such beneficiaries prefer any party that implements cash transfers.

The biggest and best known of all cash transfer schemes in the developing world is the Bolsa Familia in Brazil, catering to over 12 million families.

Mumbai launch

Mumbai and its suburbs are among the six districts in Maharashtra where the scheme will be launched tomorrow. The state is among the leaders in Aadhaar cards.