Rising global prices: Fertiliser subsidy to rise by another Rs 25,000 crore

With this, the budgeted subsidy on fertiliers will be around Rs 1.19 lakh crore against the budget estimate (BE) of Rs 79,530 crore.

By Prasanta Sahu & Prabhudatta Mishra

The government will likely allocate an additional Rs 25,000 crore as subsidy on fertilisers for the current financial year to insulate farmers from rising global prices of diammonium phosphate (DAP) and urea, official sources told FE.

With this, the budgeted subsidy on fertiliers will be around Rs 1.19 lakh crore against the budget estimate (BE) of Rs 79,530 crore. On June 16, the Centre had announced a Rs 14,775-crore additional subsidy over and above the BE as it increased the subsidy on DAP by 140% for the kharif season to ensure that sowing of summer crops were unaffected by the surge in global prices of the fertiliser, which is largely imported.

Fertiliser subsidy, which has remained around Rs 70,000 crore/year for the last one decade, rose 58% on year to Rs 1.28 lakh crore in FY21 as the government cleared arrears. Additional subsidy of Rs 40,000 crore on fertiliser over the BE would put pressure on government finances even though buoyant tax revenues will cushion it to an extent and extra market borrowing may not be required.

To the discomfiture of the Centre, the global fertilsier prices are not showing any sign of cooling down. In fact, DAP prices have gone up by 16% to since June 16. In the rabi season beginning October, industry estimates total fertiliser requirement of 256 lakh tonnes, of which 45% is imported (mostly DAP, MOP and urea).

DAP futures prices for October deliveries were up 56% on year at around $672/tonne. India is estimated to import 46.58 lakh tonneof DAP in the coning rabi reason. Urea futures for October deliveries were up 85% at $518/tonne. India’s urea import requirement is projected to be 50.5 lakh tonnes for the upcoming winter crop season.

“Sowing of rabi crops may not be impacted, but yield could be affected if fertiliser prices increase or availability becomes an issue,” said Ravi Kishore, an industry expert. As seen in kharif season, the government has been controlling sales of urea after global prices increased because farmers tend to buy more of the nitrogenous fertiliser than DAP and MoP, he said.

Madhya Pradesh chief minister Shivraj Singh Chouhan in July had urged the Centre to increase availability of urea since the supplies were sufficient to meet only 60-65% of the requirement during April-July.

Although the Centre increased the subsidy by Rs 14,775 crore in mid-June, the global prices of DAP and MoP continued to rise relentlessly, putting pressure on companies to raise retail prices.

The global prices of DAP have increased from $580/tonne to $ 672/tonne and that of MoP from $280/tonne to $445/tonne in past three months. Urea prices, which were around $410/ tonne in August, increased to around $440/tonne in September and the October futures at CME is trading around $518/tonne. The increased prices are mainly due to ban on its export by China.

India is reported to have imported about a million tonne of urea from China during April-July this year.

For over a decade now prices to the farmers of phosphatic and potassic (P&K) fertilisers are to a large extent determined by the market as subsidies provided by the government are fixed.
Considering this crisis of pricing of DAP in India, the Centre had increased the subsidy rates under nutrient based subsidy scheme as a special package for farmers in such a way that MRP of DAP (including other P&K fertilisers) can be kept at the last year’s level till the present kharif season, the government had said in June.