The Hindu Business Line : DAP fertiliser subsidy bill may go up Rs 25,000 cr

New Delhi, April 12 Faced with extremely tight supplies of phosphoric acid (the main input for manufacturing di-ammonium phosphate) in the global market, Indian fertiliser manufacturers have negotiated an import price of $1,985 per tonne with the international suppliers for fiscal 2008-09. This is an increase of 250.55 per cent over the average price of $566.25 per tonne of imported phosphoric acid during 2007-08.

This price hike would mean that the Government would have to fork out an additional Rs 25,000 crore as fertiliser subsidy during 2008-09 on account of di-ammonium phosphate (DAP) alone.

The Fertiliser Association of India (FAI) is already apprehending severe shortage this year because even at higher prices, supplies in the global market are drying up following the Chinese ban on fertiliser exports from this year, a senior official of the association said.

With phosphoric acid price pegged at $1,985, production cost of DAP comes to an estimated Rs 49,000 per tonne whereas the maximum retail price (MRP) for DAP is Rs 9,350 per tonne.

The existing subsidy rate for DAP is around Rs 8,000 per tonne. The higher cost of production because of increased phosphoric acid cost would thus leave an additional gap of around Rs 32,000 per tonne for the Government to bear.

Assuming that annual consumption remains at last year’s level of 8 million tonnes, the higher phosphoric acid price would account for more than Rs 25,000 crore net increase in the Government’s subsidy bill.

Simultaneously, FAI is worried over whether the Government would accept the negotiated $1,985 per tonne phosphoric acid price as the base price for calculating subsidy.

The Government, on its part, is planning to calculate the subsidy amount based on derived price of phosphoric acid for which imported DAP price would be the benchmark. DAP has two nutrients – 18 per cent nitrogen (N) and 46 per cent phosphate (P2O5).

“At the existing rate, the private players will not import unless there is clarity from the Government on the subsidy amount. And till date the Government has not communicated any definitive position view to the industry,” FAI said.

Related Stories:
Govt working on new DAP subsidy formula
Supply situation tight for DAP this year
DAP import prices may touch $500/t

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