Fertilizer subsidy bill set to touch record ₹1.65 trillion in FY23: Report
Premium- A revision in nutrient-based subsidy rates is crucial to sustain credit profiles of fertiliser makers, Crisil said
New Delhi: The central government’s fertilizer subsidy outgo could touch an all-time high of ₹1.65 trillion in FY23, against the budgeted ₹1.05 trillion, due to an unprecedented rise in the cost of raw materials and prices of fertilizers globally, rating agency Crisil said on Thursday.
A revision in nutrient-based subsidy rates is crucial to sustain credit profiles of fertilizer makers, the agency said in an analysis.
To be sure, the government has been proactive in addressing the situation, Crisil said. In FY22, the government had originally allocated ₹79,530 crore as fertilizer subsidy but eventually raised it to ₹1.4 trillion, showed budget documents.
Crisil said another intervention may be needed in this fiscal. Not doing so would take the subsidy arrears to an all-time high of over ₹75,000 crore by end of this fiscal, it said.
Mint reported on Tuesday that the central government is set to raise the subsidy on fertilizers for the kharif crop season to cool prices for farmers.
Fertilizer department said in a presentation on Tuesday that international prices of fertilizers and raw materials have been constantly rising since January 2021. An inter-ministerial committee recommended revision of nutrient-based subsidy rates for nutrients nitrogen, phosphorous, potassium and sulphur for kharif 2022 based on average international prices of fertilzers in March 2022 as a special case this year, Mint reported.
“Over 85% of the subsidy arrears could be contributed by urea. This is because pooled gas prices ― a blend of domestic gas and imported LNG considered for billing to fertilisers plants ― had shot up more than 75% last fiscal, and is expected to remain elevated for most part of this fiscal because of the Russia-Ukraine conflict. At the same time, retail prices of urea have stayed put, increasing the government’s subsidy burden. This would be despite some respite likely from the commissioning of new domestic capacities that could potentially halve India’s import dependence for urea from nearly 28% in fiscal 2021," the rating agency said quoting its director Nitesh Jain.
While non-urea makers have hiked prices, it may not be sufficient to cover the escalation in cost. For non-urea fertilizer makers, the government pays subsidy as per the nutrient-based subsidy (NBS) rates, which are yet to be announced for this fiscal, Crisil said.