Sugar Development Fund

The Sugar Development Fund (SDF) is a government-established fund in India, created to support the sugar industry through concessional financing and developmental assistance. It aims to modernise sugar mills, promote better cultivation practices, and encourage value additions.

Establishment and Legal Basis

• The SDF was constituted under the Sugar Development Fund Act, 1982.
• It is governed by rules framed under the Act (initially in 1983, with amendments thereafter).
• The fund’s resources historically came from a sugar cess imposed on sugar produced by factories, along with other allocations by the central government.
• After the introduction of the Goods and Services Tax (GST) in July 2017, the sugar cess was abolished. Since then, SDF demands and disbursements are met directly from the Consolidated Fund of India through budgetary allocations.

Objectives and Functions

The SDF is used to provide loans or grants at concessional interest rates to sugar factories and associated units. Its major objectives include:

1. Modernisation and Rehabilitation
   • Financial support for upgrading old mills, improving efficiency, and increasing capacity.
2. Cane Development
   • Assistance for implementing better sugarcane cultivation practices in areas around the factory, to boost yield and quality.
3. Ethanol / Alcohol Production
   • Funding to set up or expand units producing ethanol or anhydrous alcohol (from sugar or molasses) to enhance revenue diversification.
4. Co-generation via Bagasse
   • Loans for projects that convert bagasse (the fibrous residue after sugar extraction) into power, promoting renewable energy use.
5. Zero Liquid Discharge (ZLD) Conversion
   • Support for converting existing plants into zero liquid discharge systems to reduce environmental impact.

Additionally, SDF funds may be applied to maintenance of buffer stocks of sugar, support for research in the sugar sector, and restructuring viable sick sugar units under certain conditions.

Nodal Agencies and Disbursement

• IFCI Ltd. acts as the nodal agency for implementing SDF financing for most sugar factories.
• For cooperative sugar factories, the National Cooperative Development Corporation (NCDC) often acts as the channel for disbursing funds.
• Applications from sugar factories undergo scrutiny under a committee framework established under the Act, with oversight from central and state governments.
• To qualify for SDF assistance, sugar mills must meet eligibility criteria such as no outstanding SDF defaults, promoter contribution (often minimum 10% of project cost), adherence to project norms, and not using SDF funds for working capital or refinancing.

Challenges and Considerations

• With the abolition of the sugar cess post-GST, the SDF now depends solely on government budgets rather than dedicated cess revenues, possibly straining funding during fiscal constraints.
• Ensuring timely disbursal and efficient use of funds is critical, especially in a cyclical and volatile sugar industry.
• Projects must be structurally and financially viable, especially in ethanol and power generation, which face market, regulatory, and technical risks.
• Monitoring and compliance are key to preventing misuse or diversion of funds.