Brief Overview of SDF Loans

Sugarcane is native to India, and many ancient texts such as Kautilya’s Arthashastra and Atharva Veda mention the cultivation of sugarcane for jaggery-making. The modern sugar industry started in India with the Dutch in the 19th century.

The Indian Parliament enacted the Sugar Development Fund (SDF) Act. The Act seeks to provide financial assistance for the development of the sugar industry and other related matters. The Act laid down a committee for the rapid disposal of loan applications and established the SDF in 1982 to develop the sugar industry in India.

What is SDF?

The Indian government established SDF in 1982 under Section 3 of the SDF Act. The following amount is to be credited to the SDF:

1. An amount equal to the money generated by levying excise duty under the Sugar Cess Act of 1982 after subtracting collection costs as determined by the Indian government;
2. Any other amount that the central government receives for the purpose of the SDF Act and is approved by the parliament.
3. The fund consists of a combination of money from the above sources and other income earned upon investing the fund amount.

As per the Act, the central government must use the fund for the following purposes:

• Provide loans for the modernisation of sugar mills or sugarcane development in an area in which a sugar mill is located;
• Offer loans to sugar mills for producing alcohol and generating power;
• Issue funds for conducting research aimed at the development of the sugar industry;
• Allocate money to buy and store ‘buffer stocks’ of sugar to maintain its price in the market;
• Cover the cost of exporting sugar internally and freight charges on sugar mills to promote exports;
• Extend loans to sugar mills for interest on schemes approved by the government;

As per the Ministry of Consumer Affairs and Food and Public Distribution website, the SDF is used to loan money to mills for the following activities:

1. Reforming and modernising sugar mills
2. Creating power from bagasse
3. Producing dehydrated alcohol or ethanol
4. Reconstructing ethanol plants into environment-friendly plants, called ‘Zero Liquid Discharge’ plants
5. Encouraging the development of sugar cane.

The loans advanced under the SDF Act are discounted, as they are 2% less than the existing bank rate.

Objective of the SDF

The SDF act explicitly lays down the aim of the SDF. The SDF offers financial support to deal with the following issues.

Low production

Despite India being one of the foremost sugarcane manufacturers, the crop output is less than other countries producing sugarcane. Therefore, sugarcane always remains in short supply to make sugar in mills.

Old equipment

Although India has many sugar mills, the equipment they use to produce sugar is old and needs replacement. Sugar mills have low-profit margins. Thus, the loans advanced under the SDF schemes help sugar mills to rehabilitate machines and increase production capacity and speed.

Short crushing season

Sugar production is seasonal and has a short crushing season from 4 to 7 months annually. The stakeholders of the sugar mills do not have work during the remaining time, which leads to the wastage of human resources and creates financial difficulties for the industry as a whole. To avoid this problem, the crop must be sowed and harvested at proper intervals to create a structure requiring adequate planning and monetary assistance.

Inadequate consumption

India has less per capita sugar consumption annually than other nations such as the United States and Australia. This phenomenon causes difficulties in sugar sales and overall market demand for sugar.

Other problems, such as irregular geographical distribution of sugar mills in the country, competitors, and infrastructure require financial redressal.

General Process to Avail Loans Under the SDF

An application for a loan or grant should be filed before a committee according to a prescribed procedure. The SDF Act provides for a committee under Section 6.

Committee

The committee must receive loan applications and facilitate their speedy disposal. Apart from this, the committee is also meant to deal with difficulties when implementing the SDF Act. The central government can appoint officers constituting the committee.

The composition and the procedure followed by the committee should be in a prescribed manner.

Loans under SDF

The procedure for making applications, processing them, and granting loans is provided under the SDF Rules 1983.

• Sugar mills submit their application to the Committee established following the SDF Act. The government portal ( https://dfpd.gov.in/download-forms.htm) provides applications for all SDF loan categories.
• The submitted applications are registered according to the submission date in the respective SDF divisions. The applications of cooperatives or private establishments are prioritised over other people in this process.
• The committee can appoint sub-committees for efficient application disposal. The sub-committee, if there is one, will examine the application first. The committee can ask sugar mill representatives to appear before it to clarify questions or give a presentation.
• The sub-committee makes recommendations to the standing committee, which will examine the sub-committees submissions on the SDF loan application.
• When the loans are sanctioned, they receive the approval of the administration for the release of funds. The administration also includes requirements that the sugar mill needs to fulfil.
• Depending on the type of loan, if the borrower requests the nodal agency (IFCI or NCDC) to release the amount in one or more instalments, it can do so.
• After loan disbursement, the nodal agency tracks the use of the loan by the borrower.

Eligibility Criteria and Conditions of SDF

All SDF loans have the following conditions in common:

• The borrower should not have an unpaid loan taken for the same purpose for which a current application is made;
• The borrower should not have defaulted on other SDF or levy sugar price equalisation fund loans.
• The borrower can present the following:
  1. bank guarantee from a scheduled bank;
  2. mortgage on any properties (movable or immovable) of the sugar mill.
• SDF loans are offered at a discounted annual interest rate of 2% less than the bank rate.
• Other than these, specific categories of SDF loans have different conditions.

Conclusion

The SDF Act deals with loan provisions for various loans. While these provisions are extensive and detailed, no explicit provisions deal with maintaining transparency during loan processing.

Additionally, the purposes for which SDF grants loans can be extended to include encouraging sustainable practices to focus on the environmental perspective. Creating more awareness by carrying out campaigns and providing educational resources on SDF loans will help overcome the sugar industry’s development obstacles.