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Fertilisers likely to hike subsidy bill, but tax mop-up may keep deficit in check

Finance Ministry expects oil prices to cool off in the next 2-3 months as the impact of the geopolitical tensions may get eased by higher production from the United States and the OPEC member countries.

Fertilisers, fertiliser subsidy bill, Union finance ministry, Oil prices, commodities news, Fiscal deficit, Russia Ukraine, Russia Ukraine Crisis, Russia-Ukraine tension, Ukraine, Ukraine Crisis, India-Ukraine-Russia, NATO, United States, Vladimir Putin, Volodomyr Zelenskyy, Business news, Indian express business news, Indian express, Indian express news, Current AffairsThe Revised Estimates had pegged the fertiliser subsidy at over Rs 1.40 lakh crore in FY22, while the BE for next fiscal is estimated at over Rs 1.05 lakh crore. (Express photo by Gurmeet Singh)

The ongoing Russia-Ukraine conflict is likely to throw the government’s fiscal math off-track with respect to agri-commodities such as fertilisers, with the subsidy bill for it expected to go up by Rs 10,000-15,000 crore this fiscal.

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The fertiliser subsidy bill for next fiscal, which has been pegged at Rs 1.05 lakh crore, is expected to be higher than estimates, a senior Finance Ministry official said.

Higher tax revenues will, however, help keep fiscal deficit close to the estimated 6.9 per cent level, the official added. The Finance Ministry expects oil prices to cool off in the next 2-3 months as the impact of the geopolitical tensions may get eased by higher production from the United States and the OPEC member countries.

“We are not too far from Budget Estimates (BE). Fertiliser subsidies are the only thing which will throw us off. It will be more than Rs 1.05 lakh crore (next fiscal); the Revised Estimates this year may go up by Rs 10,000-15,000 crore. We will still be closer to bottomline numbers partly due to better tax collections,” the official said.

The Revised Estimates had pegged the fertiliser subsidy at over Rs 1.40 lakh crore in FY22, while the BE for next fiscal is estimated at over Rs 1.05 lakh crore.

Since farmers are stocking up fertilisers before the beginning of the sowing season, the impact is immediate and they cannot wait for the supply situation to ease as key components in fertiliser manufacturing such as potash are imported. Further, a rise in natural gas prices — a key raw material for the manufacturing of urea and comprising nearly 70 per cent of the total cost of producing urea — in the global market would lead to rise in domestic prices of urea.

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“They want to make sure there’s enough stock for this year. Some may get offset next year. For now they are ensuring that stocks are adequate,” the official said.

Russia and Belarus are the world’s no. 2 and no. 3 producers of muriate of potash (MOP) fertiliser, at 13.8 million tonnes (MT) and 12.2 MT in 2020, respectively. India’s dependence on imported fertilisers is quite high and MOP is a nutrient that is fully imported. Out of the total 5.09 MT that was imported in India in 2020-21, nearly a third came from Belarus (0.92 MT) and Russia (0.71 MT).

International prices of other fertilisers (urea, di-ammonium phosphate and complexes) and their raw materials/intermediates (ammonia, phosphoric acid, sulphur and rock phosphate) have also gone up sharply in recent weeks. A higher nominal GDP on account of higher inflation will also aid in keeping the headline fiscal deficit number in check.

“India’s fiscal deficit would be close to 6.9 per cent as given in the Revised Estimates as higher tax revenues will offset the gap in the non-tax revenues and higher fertiliser subsidy outgo. As of now, we will remain close to the numbers given in the RE for this year and in the Budget estimates for next fiscal,” the official added.

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In the RE for the current fiscal ending March 31, the fiscal deficit has been revised a tad higher at 6.9 per cent of GDP, from 6.8 per cent estimated earlier. The deficit is projected to come down to 6.4 per cent of GDP in the next fiscal.

International crude oil prices shot up to 14-year high of $140 per barrel early last week before retracting close to $112 on Friday. High fuel prices will have a bearing on the Budget as the Economic Survey 2021-22 had projected prices in range of $70-75 per barrel for the next year. Crude oil imports are nearly 20 per cent of the country’s import bill.

“… India’s GDP is projected to grow in real terms by 8.0-8.5 per cent in 2022-23. This projection is based on the assumption that there will be no further debilitating pandemic related economic disruption, monsoon will be normal, withdrawal of global liquidity by major central banks will be broadly orderly, oil prices will be in the range of US$70-$75/bbl…,” the Survey said.

Aanchal Magazine is Senior Assistant Editor with The Indian Express and reports on the macro economy and fiscal policy, with a special focus on economic science, labour trends, taxation and revenue metrics. With over 13 years of newsroom experience, she has also reported in detail on macroeconomic data such as trends and policy actions related to inflation, GDP growth and fiscal arithmetic. Interested in the history of her homeland, Kashmir, she likes to read about its culture and tradition in her spare time, along with trying to map the journeys of displacement from there.   ... Read More

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  • commodities news Fertilisers Fiscal deficit Ministry of Finance Oil prices Russia Ukraine Russia Ukraine Crisis Russia-Ukraine tension Ukraine Ukraine Crisis
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