Centre may allow one-time settlement of SDF sugar dues

As part of the plan, the Centre is considering waiving an additional interest amount of ₹797 crore due under the new loan restructuring, two officials aware of the matter said.

SDF enables sugar mills to take out loans for setting up heat treatment plants irrigation schemes, modernizing mills and producing ethanol from alcohol. They get the loans at 2% below the bank rate.

Since the inception of SDF, the Centre has been able to recover about ₹8,851 crore so far, and is owed about ₹1,307 crore of principal amount and ₹1,181 crore as interest by 179 mills, according to the food and public distribution ministry.

“The policy is still in the conceptualisation stage. If finalised, the scheme will ask eligible sugar factories to clear only their principal and interest outstanding amount of nearly ₹2,500 crore within 3-6 months,” one of the officials said.

“However, a final call on the timeline will be taken by the group of ministers.”

The policy may take some time to be formulated as it is still to be discussed at a higher level, the official said.

“A one time settlement policy not only helps millers to exit from the defaulters list but also provides the government with an opportunity to recover outstanding amounts blocked for years,” Prakash Naiknavare, managing director of National Sugar Federation of India, said.

“However, the government may have to sacrifice some amount by exempting penal interest.”

If the government comes up with such a policy, it will help sugar mills to pay in a lump sum and get benefits under existing schemes for the growth of mills in future, he said.

However, some experts say that one time settlement does not address the issue of inefficiency in the sugar industry caused by delays in repayment of SDF loans. “One time settlement is very fashionable in India, but it promotes inefficiency, which is not good for the economy in the long run,” a sugar industry expert said.

Delays and defaults in payments by weak units make stakeholders like sugarcane farmers and workmen suffer. Consumers also suffer as the cost of production of such units is high and their cost of production becomes the floor for the cost of production while fixing prices. This is beside the moral hazard of misapplication of taxes realised by the government from which SDF has been accumulated.

“To prevent such a situation, the government should bite the bullet and take such defaulters to NCLT under the Insolvency and Bankruptcy Code. The government will stand a good chance of recovery being a secured creditor,” the expert said.

Change of ownership through the IBC process will ensure that the units are operated efficiently by new investors. There is no risk of farmers’ crops not being accepted as the Resolution Professional manages the enterprise. In the case of defaulting cooperatives, the government should persuade the state to bring about a change of management. This will introduce all-around efficiency, the expert said.

In order to recover outstanding SDF amount and facilitate rehabilitation of financially weak but economically viable mills, the Centre in January last year allowed a moratorium of two years and then repayment of loans in five years for factories that had defaulted.