Following RBI's decision to hike bank rate, the Food Ministry increased the interest rate on loans provided to sugar factories from the Sugar Development Fund (SDF) to 7.5% from the earlier 4% from 14 February 2012. The Fund is utilised to provide loans at concessional rates to sugar factories for development, modernisation, co-generation of sugar-cane and as well as ethanol projects.
The interest rate was increased after Reserve Bank of India announced its decision on 13 February to hike the Bank Rate to 9.5 per cent per annum from 6 per cent per annum.
Given that the Food Ministry provides SDF loans at 2 per cent less than the prevailing bank rate, the interest rate was revised to 7.5 per cent per annum (2 per cent less than bank rate of 9.5 per cent).
Since 2003-04 fiscal, the government sanctioned Rs 4172.20 crore loans from SDF and out of the total amount Rs 3,176.03 crore has been disbursed.
The Sugar Cess Act provides that an excise duty not exceeding Rs 25 per quintal of sugar shall be levied and collected as cess for SDF. Currently the cess levied is at a rate of Rs 24 per quintal of sugar.
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