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The Centre’s decision to provide additional fertiliser subsidy of ₹28,655 crore for the rabi season will likely benefit both farmers and the industry, experts said.
ICRA, in a note, said the move will ensure farmers get access to fertilisers at a reasonable price in retail outlets, while the industry also does not face losses on account of the elevated international prices of fertilisers and key inputs.
One-time package
On Tuesday, the government approved a special one-time package for pay-out of additional subsidy for di-ammonium phosphate (DAP) and three most consumed NPK (nitrogen, phosporous and potassium) grades. The subsidy rates under the Nutrient Based Subsidy (NBS) scheme have been kept unchanged from the announcement made in May 2021.
However, an additional pay out of ₹438/bag (₹8,760 per tonne) for DAP and ₹100 per bag (₹2,000 per tonne) for the three most-consumed NPK grades has been approved by the Union Cabinet.
“The GoI step will provide succour to the industry as the phosphatic fertiliser players had been incurring losses on the sale of DAP due to which, the stocks had dipped and availability to farmers had become an issue.
Rabi season
“As per our estimates, the industry will be making marginal profit on sale of DAP, while NPK sales are expected to provide decent level of profitability in the upcoming rabi season. The estimated total subsidy requirement for the P&K fertiliser is around ₹48,000 crore for FY22, of which ₹28,000 crore will be required for the rabi season. Nevertheless, we believe GoI will make adequate approved allocations to meet the additional subsidy outgo for the sector, thus keeping the credit profile healthy,” Sabyasachi Majumdar, Group Head & Senior Vice-President at ICRA, said in a release.
The availability of the phosphatic fertiliser had come under duress due to continued rise in the international prices of finished fertilisers as well as key inputs like ammonia and phosphoric acid.
“We appreciate the Government decision for providing an additional ₹28,655 crore to fertiliser companies as compensation for selling products at lower than market prices to farmers. The proposal would partly offset the increase in fertiliser price due to international factors. The increased fertiliser subsidy in the current financial year would definitely help the farmers,” said Kalyan Goswami, Director General, Agro Chem Federation of India.
With the sale of DAP becoming loss-making due to higher global prices, its availability in the domestic market had dropped sharply as the kharif season progressed.
Prashant Vasisht, Co-Group Head & Vice-President, ICRA Ratings, added, “Rabi season remains the main season of application of phosphatic fertilisers. With the increase in the subsidy on these key grades of phosphatic fertilisers, we expect decent level of profitability for phosphatic fertiliser players. As a result, DAP imports and manufacturing of complex grades is expected to rise going forward ensuring better availability of the same for the upcoming rabi season.”
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