Fertiliser subsidy dues likely to cross a record ₹60,000 crore in FY21

While things looks rosy for the farm sector with a good monsoon and optimism among farmers pushing demand for fertilisers and seeds higher, the Centre has not been able to foot the ballooning subsidy demand on fertilisers.

The manufacturers of these chemicals, especially urea, are in deep trouble. The year 2020-21 began with subsidy dues of ₹48,000 crore. In February, contrary to the expectations of an increase in allocation in the Budget for fertiliser subsidy to meet the pending dues, the Centre reduced the amount; it set aside ₹71,309 crore vs. ₹79,996 crore in the previous year. This allocation will not be enough to pay the outstanding dues of of last year and this year. The industry anticipates the pending subsidy to hit a record ₹60,000 crore by end of FY21.

Satish Chander, Director General, Fertiliser Association of India, urges the Centre to clear the pending subsidy payments to relieve the industry from working capital stress. The industry association is asking for additional allocation of ₹50,000 crore besides the amount provided in the Budget (₹71,309 crore).

How did the deficit come to be?

Every year, about ₹75,000-80,000 crore is the actual amount of subsidy that is required for fertilisers. In the Union Budget, the Finance Minister does provide for that amount. But given that there is carry forward of dues of the previous year, the total requirement each year is much higher.

In FY18, the unpaid subsidy carried forward was ₹26,182 crore; in FY19, it increased to ₹39,053 crore. By the end of FY20, the pending bill ballooned further to ₹48,000 crore. While the budgeted allocation for fertiliser subsidy in FY21 was ₹71,309, industry representatives feel that only 80 per cent of it may be released within the current fiscal year given the Department of Fertilisers has been kept in Category B for subsidy payments. So, this reduces the subsidy available to about ₹57,000 crore.

If the ₹10,000-crore bank loan raised by the industry under the Special Banking Arrangement (SBA, a provision for fertiliser companies to borrow against their subsidy claims) in March 2020 is deducted from this amount, the availability of funds for the current year reduces further to ₹47,047 crore. The total requirement of funds, on the other hand, for the first three quarters will be ₹1.08-lakh crore, says the industry association – ₹48,000 crore of carry forward dues for FY20 and ₹80,000 crore for FY21, less ₹20,000 crore of the fourth quarter subsidy carried forward to next year. Usually, every year, the subsidy for the last three/four months is paid only in the next year.

Given that for the first three months of the current year, the Centre has paid about ₹17,216 crore, the balance budget left for the next three quarters is ₹29,831 crore against the requirement of ₹90,784 crore (₹1.08-lakh crore minus ₹17,216 crore). So, the likely deficit for the year works out to ₹60,952 crore.

COMMENT NOW