State governments' announcement of cash subsidy is likely to improve the liquidity of mills, helping them in making cane payments to farmers, a report has said.

Recently, Uttar Pradesh (UP) and Haryana's state advisory policy (SAP) had announced a cash subsidy of close to Rs 100 billion as on mid-September 2018, Icra said in a report which added that this move is likely to result in some improvement in the mills' liquidity and support them in making cane payments to the farmers.

"The cash subsidy of Rs 4.50 per quintal by the UP government is likely to improve the contribution margin from sugar by Rs 400450 per tonne. Further, the soft loans of Rs 40 billion low-interestnterest rates of 5 per cent, which would enable the mills to save the interest costs against working capital limits," Icra Ratings senior vice president and group head, Sabyasachi Majumdar, said.

He said, the Haryana government has also announced financial assistance (subsidy and soft loans) of Rs 16 per quintal to clear the cane dues of SY2018 (sugar year).

"These steps are likely to provide some liquidity to the sugar mills and support them in clearing farmer dues," he added.

In UP, the mills availing loan under the Scheme for Extending Financial Assistance to Sugar Undertakings-2018 (SEFASU-2018) will have to ensure 100 per cent payment of outstanding cane price of crushing season SY2017 and SY2018, including utilisation of this sanctioned loan, by November 30, 2018, the Icra report said.

The loan tenure is for five years and the repayment is to be done in monthly instalments, beginning from July 2019, it said.

While the Haryana government has approved subsidy for the crushing season SY2018 only for those mills who repaid the outstanding amount against loans taken in SY2015 and SY2016, it added.