The government will bear interest liabilities up to 8 per cent per annum for short-term loans that it will provide to fertiliser companies under a special banking arrangement to meet the subsidy payment shortfall.
“Government will make a special banking arrangement (SBH) of Rs 5,000 crore allowing fertiliser firms to raise short term loans through a consortium of public sector banks against the subsidy payments that are pending,” a senior Fertiliser Ministry official said.
Under the SBA, government will bear interest liabilities of up to 8 per cent per annum, the official added.
The loan amount will be re-paid by the Ministry once it receives the budgetary allocation from the government.
Faced with a severe liquidity crunch, Fertiliser Ministry last year had proposed to the Finance Ministry for a SBH of Rs 25,000 crore, but the amount approved was Rs 5,000 crore.
The Ministry has not paid the subsidy bills for phosphatic and potassic (P&K) fertilisers like muriate of potash (MoP) and di-ammonium phosphate (DAP) since July and for urea since August 2012.
Earlier this month, Minister of State for Fertilisers Srikant Jena told Parliament that “the allocation of funds for fertiliser subsidy in the year 2012-13 is Rs 65,592.13 crore under Budget Estimate. The requirement of funds projected in Revised Estimates is Rs 1,02,207.39 crore”.
The banking arrangement is similar to the one offered in 2008-09, when the Ministry had faced a similar fund shortage for subsidy payments.
Last year in December, Fertiliser Association of India (FAI) said the budget allocation of Rs 60,974 crore for fertiliser subsidy as approved by Parliament has already been exhausted. An estimated Rs 19,000 crore subsidy payment is outstanding for the period till October, 2012.
In addition, for the remaining period of 2012-13 fiscal, that is beyond October 2012, the estimated requirement of funds is Rs 19,000 crore, the industry body had said.
On an average, India consumes about 30 million tonnes of urea and around 25-26 million tonnes of DAP, MoP and complex fertilisers annually.