Why the Maharashtra government is offering a guarantee to loans raised by sugar mills

The Maharashtra government on Monday issued separate notifications to guarantee loans raised by two sugar mills owned by sugar baron politicians. Other sugar mills in the State are set to get similar benefits even as sugar mills have a history to default on loans guaranteed by the State.

The Vitthal Cooperative Sugar Mill in Solapur district has got the State government’s guarantee for a loan of ₹60 crore approved by the Maharashtra State Cooperative Bank (MSCB) in December last year. Now the State government has offered a guarantee for the interest worth ₹8.40 crore. The same is the case with Bhor (Pune) based Rajgad Sugar Cooperative. The mill got a government guarantee for the loan of ₹12 crore in December last year. The government by issuing a notification now has provided a guarantee for the interest of ₹1.68 crore charged by MSCB.

Interestingly these factories were not eligible for the loan because they didn’t fulfill the National Bank for Agriculture and Rural Development (NABARD) norms. So the State has to step in to give guarantee. More than 50 mills are facing problems in raising loans because of their negative net disposable resources (NDR) and they would get government support. The majority of sugar mills are mismanaged, say experts adding that financial losses are due to corruption and mismanagement.

Sugar politics

The Nationalist Congress Party (NCP) and Congress leaders had urged the State government to provide help to sugar mills which are facing a financial crisis.

During the 2019 Assembly elections, many Congress and NCP sugar barons shifted their loyalties to the BJP. Now, Congress and NCP leaders are trying to bring sugar barons back to their party fold. Providing government guarantee to sugar mills could help to fulfill this objective, admitted a Congress leader.

When Uddhav Thackeray took charge as Chief Minister in November last year, the government cancelled the guarantee on loans of over ₹300 crore taken by seven sugar mills owned by BJP leaders.

Sugarcane farming is the source of livelihood for nearly 2.5 crore people living in rural Maharashtra. The amount of money that flows through the cooperative network makes it the most vital link between the rural economy and politics.

Sugar mills in Maharashtra have been the lifeline of Congress and NCP’s politics and BJP leaders have entered the arena in the last few years. Massive subsidies, high returns and support from financial institutions and the State have attracted regional satraps to the sugar sector.

“Financial assistance, guarantee to loans and interest and any other kind of aid to sugar mills is nothing but a political decision. Sugar barons have strong control over Maharashtra’s politics. Uddhav Thackeray government wants to ensure that sugar baron MLAs are not disturbed and they continue to support the government,” said Agriculture expert Nishikant Bhalerao.

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