The government of Uttar Pradesh will not declare a new sugar policy unless farmers are paid the cane arrears amounting to Rs 2,700 crore (Rs 27 billion) that sugar mills owe them.
On June 1, the state government, under the new Chief Minister Mayawati, had scrapped the 2004 UP Sugar Industry Promotion Policy introduced by her predecessor Mulayam Singh.
"Our priority is to ensure than farmers are paid their arrears," said Arvind Raj Singh, the state sugar secretary, adding that the huge cane arrears could cause farmers to shift from growing sugarcane to other crops, which may eventually impact domestic sugar production.
Mills have piled up huge cane arrears owing to a glut in sugar production -- a result of the 2004 incentive package -- that led to low realisations and a cane price that remained higher than the return on sugar.
The 2004 policy offered, among other things, a 10 per cent capital subsidy on investment, remission of stamp duty and registration charges on land purchase, reimbursement of transport costs for cane and sugar for selective distances, and a variety of tax breaks and waivers on administrative charges.
These incentives were to be given for a five-year period to any company that invested a minimum of Rs 350 crore (Rs 3.5 billion) and for 10 years for investments of Rs 500 crore (Rs 5 billion) or more.
The incentive package had prompted major sugar producers like Bajaj Hindusthan, Balrampur Chini Mills, and Triveni Engineering and Industries to make large investments in the state.
Overall, sugar producers committed Rs 6,000 crore (Rs 60 billion) to set up 28 sugar mills under the policy.
