Ministerial panel recommends bail out package to the sugar industry including financial assistance to sugar cane farmers
An informal group of ministers, headed by Agriculture Minister Sharad Pawar recommended a number of incentives to cash-starved sugar mills including financial package to pay cane farmers.
Why the need for a financial package for sugar mills ?
Owing to an increase in prices of fuel and fertilizer, farmers are insisting that mills pay Rs.280- Rs.300 per quintal for sugarcane. But millers hold that they can afford to pay only Rs.225 per quintal.
At present, sugar industry is facing a financial crisis due to higher cost of production and decline in the prices of sugar. This has led to 3400 crore rupees cane arrears from 2012-13 during the marketing year that ended in September 2013. Thus, owing to liquidity crunch, the sugar mills demanded interest-free loans for working capital requirement, hike in import duty, export subsidies among others. This financial package will allow millers to pay money they owe to the farmers.
Recommendations of the Panel headed by Agriculture Minister Sharad Pawar:
To ensure timely payments to cane growers, the PM-constituted panel recommended loan recasting for mills as per the RBI norms, incentives for production for raw sugar of up to 4 million tonnes and setting up of buffer stock besides doubling ethanol-blending in petrol to 10%.
- The bailout includes 7200 crore rupees at 12 percent interest rate to sugar mills by the banks to pay off the arrears of the sugarcane growers.
- The 12% interest on the financial support on the loan will be paid by Government of India (GoI) and Sugar Development Fund (SDF). The GoI will pay 5% of the loan, while the 7% will be paid by the SDF. This makes the loan amount free of interest for the sugar mills.
- The mills will have to repay loans in 5 years, but can get a moratorium on repayment in the first two years.
- To increase import duty on sugar (but at present there is no hike in import duty).
- An inter-departmental panel will be set up to coordinate with oil marketing companies and sugar mills for ethanol blending.
Note:India is the second biggest sugar producer in the world after Brazil. Maharashtra and Uttar Pradesh are the top sugar producing state of India.
To safeguard the financial system from any possible crisis situation where large financial institutions faltered due to loss of confidence in the financial system, the Reserve Bank of India (RBI) released the draft report to introduce increased capital requirements by 2016 for banks regarded as too big to fail and make them subject to greater regulatory oversight.
Key Elements of the RBI Report on D-SIBs (banks too-big-to-fail)
- It outlines the methodology to be adopted for identifying the D-SIBs and regulatory policies for them.
- The sample of banks for D-SIBs will be selected when its’ size is more than 2 % of GDP .
- Banks classified as systemically important will be required to hold additional capital in the range of 0.2 % to 1 % of their risk weighted assets.
- The banks designated as D-SIBs will be subjected to more intense supervision in the form of higher frequency and higher intensity of off- and on-site monitoring.
- A D-SIB in lower bucket will attract lower capital charge and a D-SIB in higher bucket will attract higher capital charge.
- Large banks such as the State Bank of India, ICICI Bank, HDFC Bank, Canara Bank and Punjab National Bank were likely to fall under this category of systemically important banks (D-SIBs) or too large to fail.
Domestic systemically important banks (D-SIBs)
These are large and highly interconnected financial institutions—whose failures failure might trigger a financial crisis or can impact the orderly functioning of the financial system and harm the economy.
What is WTO Ministerial Conference?
The WTO Ministerial Conference is the topmost decision-making body of the World Trade Organization which regularly convenes every two years. It brings together all members of the WTO, all of which are countries or customs unions. The Ministerial Conference can take decisions on all matters under any of the multilateral trade agreements.
The conference has key issues to discuss viz. Trade facilitation, Agriculture negotiations, Cotton Least-developed countries Monitoring mechanism, Small and vulnerable economies, Yemen’s accession, E-commerce “Non-violation” in intellectual property, etc.
What was India’s stand at the Bali Ministerial of the World Trade Organisation 2013 ?
India decided not to agree to the ‘Peace Clause’ for agriculture subsidies that the World Trade Organization (WTO) Director-General Roberto Azevedo has proposed for Bali talks.
Here, India stands to seek safeguards for subsidies given to the farmers for food security purposes by poor countries. Commerce and Industry Minister Anand Sharma said that for India, food security is non-negotiable, it is an integral part of the millennium development goals and the need for public stockholding of food grains to ensure food security must be respected, and for this WTO rules must be updated.
For this valuable cause, India got support from many WTO members like South Africa, Nepal, Egypt, Uganda, Namibia, Argentina, Zimbabwe, Ecuador, Venezuela, Mauritius and Nicaragua, etc.
What is the Peace Clause under current context and why an issue over this Peace Clause?
Under this ‘Peace Clause’, developing countries can provide WTO-prohibited subsidies to farmers without inviting any dispute under the Agreement on Agriculture, developed countries will have the right to drag these countries to the WTO Disputes Settlement Body, under the Agreement on Subsidies and Countervailing Measures. This would render the peace clause null-and-void.
Note : Developed countries pressurizing India to accept a peace clause, which offers four years of immunity against penalties imposed for breaching the farm subsidy cap of 10 per cent under the WTO Agreement on Agriculture (AoA).
Outcome of the 9th ministerial conference of the World Trade Organization (WTO)
Because of India’s concern of Food security, WTO’s Bali Ministerial Conference revised draft decisions on a package of issues designed to streamline trade, allow developing countries more options for providing food security, boost least developed countries’ trade and help development more generally.
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