Rs 34,000 cr in fertiliser subsidy may be rolled over

Rs 34,000 cr in fertiliser subsidy may be rolled over

As against the budgeted fertiliser subsidy of Rs 65,791 crore for FY14

The tussle between the government and the fertiliser industry over delayed release of the dole reached court rooms this year,but that won’t prevent a fiscally-stressed finance ministry from its plan to defer a record R34,000 crore payment to the coming years.

As against the budgeted fertiliser subsidy of R65,791 crore for FY14,the government has disbursed R31,500 crore to the fertiliser manufacturers so far this fiscal. The industry,through which the subsidy on these critical farming inputs are routed,is compensated under various heads. Official sources say the bulk of the amount released this fiscal was used to pay the arrears from previous years. The government,these sources said,would stick to the budgeted subsidy amount for this fiscal (which allows it to account for just over R34,000 crore for the rest of the year). Finance ministry estimates the payment obligation for the first half of this fiscal would cover the entire budgeted amount after paying arrears.

The second-half subsidy bill,the ministry reckons,would be a bit higher than in H1,considering the industry’s production pattern and import costs. This amount — R34,000-35,000 crore — would be rolled over. This is more than four times R8,234 crore rolled over in FY10.

The industry,on the other hand,estimates that this year’s subsidy bill,given the surge in prices of imported inputs and finished products and deferment of urea price hike,would be close to R80,000 crore. That apart,some arrears (on freight etc) are still unpaid,say industry officials.


The surge in fertiliser subsidy is despite the policy of fixed subsidy on phosphorous and potash (P&K) fertilisers adopted in early 2010. India imports its entire requirement of P&K fertilisers (it is another matter that the Planning Commission has been among those which flayed the steep rise in prices of P&K fertilisers after the 2010 decision,citing its likely adverse impact on farm GDP. The retail prices of urea,the most commonly used fertiliser,continue to be controlled by the government and the last major price revision (10% hike) was in early 2010. This is even as the industry believes urea prices need to be hiked by 40%.

Of the estimated fertiliser subsidy of R65,971 crore for this fiscal,R15,544 crore is for imported urea,R21,000 crore for indigenous urea and R29,427 crore for decontrolled fertilisers (DAP,MOP and complexes).

The industry has been in a severe liquidity crisis in the last 3-4 years primarily due to inadequate budget provisions year on year. “The roll-over takes place every year. After a lot of requests,the finance ministry sometimes makes a special banking arrangement for paying subsidy. The delay in subsidy payments has huge implications on the operations of urea firms,” said Satish Chander,director general,Fertiliser Association of India.

The finance ministry may seek Parliament’s approval for a supplementary demand for grants in the winter session for the second-half fertiliser subsidy requirement,but sources say given the difficult fiscal deficit target,the amount may not be paid this year even if approved.

In August this year,the finance ministry made available a Rs 5,500 crore special banking arrangement (which carries an interest incentive) to help the fertiliser industry. Under the arrangement,companies are offered loans against subsidy receivables over and above their normal working capital limits,against the sovereign guarantee. But again,the industry is not happy. “The special banking arrangement of Rs 5,500 crore for 60 days carries an interest of 10.25%. The government pays 8% and the balance interest burden (2.25%) is on the industry,” said S Nand,member,Fertiliser Association of India.

“The situation becomes grave when the delay in payment of subsidy and freight bills results in defaults by fertiliser companies in payment of bills for raw materials for domestic production and also for import of finished fertilisers. Due to rupee devaluation,this has a cascading effect on production,import,availability of fertilisers and erodes margins,” Chander said.

In July this year,FAI had dragged the central government to the Delhi High Court over he delay in payment of subsidy. In May,the FAI,on behalf of all the fertiliser companies,had filed a case against the fertiliser ministry in the High Court over losses incurred during the distress sale of bonds issued by the government. The government had issued bonds towards payment of subsidy of Rs 27,500 crore to the companies during 2007-08 and 2008-09. Later in 2011,RBI bought back bonds worth Rs 11,795 crores at a discount and in this,the companies claimed to have suffered a loss of Rs 1,782 crore. Moreover,some companies were still holding on to Rs 1,947 crore worth of bonds which had no takers.