State backed sugar co-ops for Rs. 165-cr loans

In a largesse to around 18 sugar cooperative mills, the state government stood guarantor for their loans worth Rs165 crore last year.

In a largesse to around 18 sugar cooperative mills, the state government stood guarantor for their loans worth Rs165 crore last year.

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Past experience shows that this could potentially become a liability for tax payers as nearly 80% of these cooperatives are controlled by ruling alliance politicians, and have routinely defaulted on loan repayments.

In a statement tabled before the legislature, the state’s finance department said that between 2011 and 2012, the government had stood guarantor for loans worth Rs1,070 crore. Of this, Rs165 crore is for short-term pre-seasonal loans to sugar cooperatives, and another Rs43 crore for long-term loans to set up four new sugar cooperatives.

The move flies in the face of the government’s earlier decision in 2009 to not provide government guarantees as they are a huge liability to the state coffers.

The state’s exchequer is burdened with nearly Rs17,320 crore worth of outstanding guarantees for cooperatives controlled by politicians, sick public-sector units, water and energy utilities. Of this, guarantees to the tune of Rs 1,892 have been invoked due to defaults by sugar mills alone, and the state may have to cough up this amount.

A senior official in the finance department defended the decision, and said, “This is not a dole-out, the sugar cooperatives were given short-term loans, which they have to return by October. After the apex cooperative bank controversy, we are more stringent. If they default, we will not give guarantee for their loans next year.

He added that in 2010-11, the state had cleared guarantees of loans worth Rs635 crore given by banks to sugar cooperatives.