Chennai, June 11 (IANS): The Rs.6,000-crore loan, with a one year moratorium, for the sugar industry announced by the central government on Wednesday will not address the sector's basic problem, said a top official of Indian Sugar Mills Association (ISMA).

In a statement issued here ISMA president A. Vellayan said: "The Rs.6,000 crore loan announcement by the government for the sugar industry, with a one year moratorium, will not address the basic problem of surplus sugar and depressed sugar prices."

The government's decision to bear the interest on the loan for just one year as compared to five years in the previous scheme announced in February 2014, is actually not an interest-free loan in true sense, he added.

He said to expect the industry to repay the loan of Rs.6,000 crore after one year is actually expecting the industry to make profits of Rs.6,000 crore within a year's time, which does not seem to be possible with a surplus of over 10 million tons and depressed sugar prices of around Rs.10 per kilo below the cost of production.

Instead of giving this loan to the industry, the loan can be extended to a buyer like Food Corporation of India and other agencies who can buy out 2.5 to 3 million tons of surplus sugar from the industry, Vellayan said.

"This way, both the objectives of clearing cane price of farmers as well as reducing the surplus sugar can be solved. Disbursement of the loan to the government agency will also be faster than giving to individual mills, which will ensure that the farmers get their payments faster," he remarked.

According to Vellayan, the government should help reduce surplus sugar stocks held by mills and improve ex-mill sugar prices, to ensure that the sugar mills are able to start their crushing operations in the next sugar season from October 2015.