Govt's fertiliser subsidy bill set to rise by 62% this fiscal: CRISIL

Govt's fertiliser subsidy bill set to rise by 62% this fiscal: CRISIL
© Provided by Business Today Govt’s fertiliser subsidy bill set to rise by 62% this fiscal: CRISIL

Union government’s fertiliser subsidy bill is all set to go up by ~62 per cent or Rs 50,000 crore to Rs 1.3 lakh crore this fiscal compared with a budgeted Rs 79,530 crore on unprecedented rise in prices of natural gas and other raw materials, as per the ratings agency CRISIL.

Government keeps the retail prices of these fertilisers much lower than market rate and reimburses the difference to manufacturers through subsidy payments. Government subsidies have, however, been insufficient for long leading to a build-up of arrears. The government cleared arrears through an additional disbursement of Rs 62,638 crore.

The ratings agency also expects the price of natural gas that accounts for 75-80 per cent of the total cost of production of urea plants to surge over 50 per cent this fiscal. In case of non-urea fertilisers, prices of key raw materials (phosphorous and ammonia) are already up 40-60 per cent over the last fiscal.

As per CRISIL, the government will have to absorb all these costs. Consequently, the government’s subsidy burden will spike by ~Rs 50,000 crore over what has been estimated for this fiscal. “The government has been proactive given the strategic importance of the fertiliser sector. it has already announced an additional subsidy of Rs 21,328 crore (Rs 14,775 crore in May 2021 and Rs 6,553 crore in October 2021) for non-urea fertilisers. Despite this, there will likely be a shortfall of ~Rs 30,000 crore, largely for urea,” CRISIL Ratings director Nitesh Jain said.

Fertiliser sales volumes have been impacted due to erratic rainfall distribution. While cumulative rainfall was 99 per cent of the long period average (LPA) this season, its distribution remained uneven – 110 per cent in June, 93 per cent in July, 76 per cent in August and 135 per cent in September.

Uneven rainfall distribution impacted sowing and high-base effect due to last fiscal’s sales volumes and limited availability in the global market also have an effect. However, domestic production will not be affected as India imports 30 per cent of its fertiliser needs and lower sales volumes also mean fewer imports.

As far as profitability is concerned, urea makers are unlikely to be affected as the higher cost of gas is a pass-through with the government fixing the resurgence support payment (RSP) while for non-urea fertiliser makers, the government pays subsidy as per the nutrient-based subsidy scheme rates while the selling price is not fixed.

Also read: CCEA increases subsidy on DAP, other fertilisers to aid farming industry

Also read: Govt says supply more than demand in November, appeals to farmers to not hoard fertilisers

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