The Hindu Business Line : Subsidy dues: Fertiliser sector may get Rs 5,000 crore more

“We were hoping to get at least Rs 9,000 crore in the second supplementary instalment, which was tabled in Parliament a couple of weeks ago. It, however, did not happen. But we have now got an assurance from the Finance Ministry that around Rs 5,000 crore would be provided when the third supplementary demand for grants is tabled in the next session of Parliament,” an official in the Department of Fertilisers told Business Line.

If the proposal is approved it would reduce the subsidy dues to be carried forward to the next financial year (2008-09) to between Rs 5,000 and Rs 6,000 crore.

The total subsidy bill for this year was estimated at Rs 48,000 crore, including last year’s arrears of Rs 8,000 crore. Of this, Rs 36,501 crore has been paid so far which includes Rs 14,050 crore allocated in the first supplementary demand for grants.

No provision

With no provision in the second supplement, the industry was expecting the subsidy dues that could be carried forward to the next financial year to be over Rs 10,000 crore.

“It is, however, still not sure if the entire amount of Rs 5,000 crore would be given in cash or there could be some element wherein it could be given in bonds,” he said.

Cut up with bonds

The industry, however, has once again expressed its displeasure on the proposal and terms of bonds being issued to partially meet the rising subsidy bill. The Finance Ministry in August proposed to issue Rs 7,500 crore in bonds with 14-16 year tenure as part of the Rs 14,050 crore allocated in the first supplement.

The bonds are modelled after oil bonds and this is the first time that such a move is being considered by the Government to defer the pressure from the rising fertiliser subsidy dues.

“The tenure of the bonds is too long and the interest rate way below our expectations. Also it is still not very clear whether they will be tradable or not. The Government should understand the bonds are being given in place of cash and if they are not saleable, then producers will be forced to borrow at 12-14 per cent from financial institutions. We have made a representation to the Department on the matter,” an official from the Fertiliser Association of India (FAI) said.

Suffering loss

Another official said even if the bonds could be traded and the industry sells them at 5 per cent discount, it will still suffer a loss of around Rs 350 crore over the total at which the bonds are being floated. “We have also written to the Department to urge the Finance Ministry to restrict the tenure of the bonds to a maximum of five to seven years and to keep the interest rate at par with the lending rate of commercial banks which is between 12.75 and 13.25 per cent,” he added.