Comments
Last week’s decision of the Union government to cut the nutrient-based subsidy (NBS) rates is seen as a move that will reduce the subsidy burden of the Government for the fiscal 2016-17.
However, the decision would also leave the fertiliser players at the mercy of monsoon for third consecutive year after experiencing two deficient monsoons.
A recent CRISIL report estimated cut in the NBS would lower the fertiliser subsidy bill by ₹5,000 crore.
The Cabinet Committee on Economic Affairs chaired by Prime Minister Narendra Modi had slashed the NBS rates for phosphatic and potassic fertilisers by about 25-30 per cent from what was in fiscal 2016. The subsidy rate for potassic nutrient was kept almost unchanged.
Triggered from the decline in the international prices of di-ammonium phosphate and ammonia, the latest cut would influence the contracted price for phosphoric acid, the key raw material, for fiscal 2017, CRISIL analysts maintained.
However, even if domestic manufacturers are able to negotiate a lower contracted price for phosphoric acid, it may not be enough to offset the subsidy reduction because they have been grappling with high NPK (nitrogen, phosphorus and potassium) inventories in the backdrop of stressed farm incomes.
As a result, operating margins of phosphatic fertiliser would remain under pressure for fiscal 2017.
After facing two consecutive deficient monsoon, Indian fertiliser industry is burdened with excess inventory of around 5 million tonnes, which is equivalent to 90-100 days of consumption.
Hence, these fertiliser players would be compelled to offer discounts to clear their inventory before the new sowing in July this year.
According to Sudip Sural, Senior Director, CRISIL Ratings, the overall subsidy bill reduction would be around ₹10,000 crore next fiscal – Rs 5,000 crore through the cut in NBS rates, and a similar amount in urea subsidy because of lower gas costs.
“This could help the government bring down its fertiliser subsidy arrears of around ₹35,000 crore that’s being rolled over since fiscal 2012.”
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.