New Delhi, Dec 26 : The government Thursday said it will provide financial aid in the form of interest subsidy to cash-strapped sugar mills to enable them make payments to farmers for cane purchases.

The Cabinet Committee on Economic Affairs headed by Prime Minister Manmohan Singh gave its final approval to the proposal to provide interest subvention.

Under the proposal the central government will provide an interest subvention up to 12 percent, at a simple rate of interest, for the additional working capital loans to the sugar undertakings, equivalent to last three sugar seasons excise duty, cess and surcharge on sugar, according to an official statement released after the cabinet meeting here.

The expenditure for the scheme will be met fully from the Sugar Development Fund (SDF).

"The sugar undertakings with loans classified Non Performing Assets (NPA) by the banks will also be eligible for the loans provided the concerned state governments give guarantee for their new loans," the statement said.

The interest subvention or subsidy would be for a total loan duration of 5 years, including 2 years moratorium period. "No interest subvention to be provided for the period of default in the principal repayments."

"The loans would be meant exclusively for effecting cane price payments by the sugar mills," the statement said.

Sugar mills have been struggling to sustain operation due to financial difficulties. In fact, private mills in Uttar Pradesh had recently refused to start sugarcane crushing, saying it was not economically viable.

The government's move is aimed to help cash-strapped sugar mills sustain operation and make payments to farmers for cane purchases. (IANS)