The recent unveiling of a slew of measures by the Union Cabinet to bail out the sugar industry from its current quagmire of financial difficulties is a timely step in the right direction.

These include subsidised loans to sugar mills to help them clear dues of farmers and mandatory blending of 5 per cent ethanol in petrol with immediate effect across the country. What is quite significant is that the Centre has allowed sugar factories to produce ethanol directly from sugarcane juice to augment its availability and reduce oversupply of sugar.

The Indian sugar industry is now facing its worst crisis, with mills not even able to recover the cost of raw material. This year's production, at 28 million tonnes, is 45 per cent higher than last year's 19.2 million tonnes.

Consequently, sugar prices have dropped sharply and most companies have incurred losses in the last two quarters. The hike in sugarcane prices by state governments over and above the Statutory Minimum Price (SMP) fixed by the Centre has compounded the situation.

The mills have been defaulting on payments to sugarcane farmers and are reluctant to pay even the SMP to farmers because of the price crash. They are even reluctant to buy the entire sugarcane being supplied by farmers due to a growing demand-supply mismatch on the domestic market front.

International sugar prices too have crashed and, therefore, export is not an attractive option. This has resulted in a tussle between mill owners and farmers as mill owners' accumulated dues to the farmers have touched a staggering amount of Rs 4400 crore.

The Centre’s relief package may improve the situation. The decision to allow sugar factories to produce ethanol directly from sugarcane juice to augment its availability will be beneficial for both farmers and the industry.

Considering the pivotal importance of the sugar industry in the overall economy of the country, the government has to take utmost care to ensure that the legitimate interests of both the industry and farmers are protected.

The Indian sugar industry is the second largest agro-industry in rural India. It is the second largest agro processing industry in the country after cotton textiles. While emphasis needs to be placed on improvement in sugarcane productivity, the sugar industry should take care to strengthen itself by focusing on modernisation, technology upgradation, economies of scale and by-product utilisation.