Agri Business

Higher crop sowing likely to raise fertiliser subisdy bill

Shishir Sinha New Delhi | Updated on October 26, 2020

A bountiful monsoon has brought a new challenge for the Finance Ministry, wtih the subsidy bill for fertilisers this year expected to be much higher. At the same time, the fertiliser industry is apprehensive that the subsidy bill for six-eight months is likely to be rolled over to the next fiscal.

For the current fiscal, the budget estimate for fertiliser subsidy is ₹71,309 crore as against the revised estimate of ₹79,997.85 crore for FY20. According to the CGA (Controller General of Accounts), the government has already exhausted nearly 60 per cent of the budget estimate during the first five months (April-August) of current fiscal. However, industry says it has got payment for the April-June period only.

Talking to BusinessLine, a senior Finance Ministry official admitted that the fertiliser subsidy will be higher than the budget estimate. “We are seeing sudden surge in demand for subsidy,” he said, admitting that some part of this rise could be because of higher sowing during crop seasons of 2019-20 and 2020-21. However, he also said that a part of the demand may not be genuine.

“The fertiliser industry complains that it not getting its due on time. We want this to be discussed during the meeting on finalising the revised estimate, so that the real facts could be ascertained,” he said, adding that the actual amount could be on the higher side.


Subsidy mechanism

There are two subsidy mechanisms for fertilisers, and in both cases, companies get the subsidy amount. As far as urea is concerned, it is provided to farmers at a statutory notified MRP. The MRP of a 45-kg bag of urea is ₹242 per bag and the MRP of a 50-kg bag of urea is ₹268 per bag (both exclusive of charges towards neem coating and taxes as applicable). The difference between the delivered cost of fertilisers at the farm-gate and the net market realisation by the urea unit is given as subsidy to the urea manufacturer/importer.

In the case of phosphatic and potassic (P&K) fertilisers, the government had implemented a nutrient based subsidy policy from April 1, 2010. Under the policy, a fixed amount of subsidy, decided on an annual basis, is provided on subsidised P&K fertilisers depending on their nutrient content. The MRP is fixed by fertiliser companies as per market dynamics at a reasonable level, which is monitored by the government.

Industry’s take

Meanwhile, sources in the fertliser industry said that demand has gone up by 20-25 per cent. “The fact is that we are not getting our dues in time, which is affecting us,” a senior official of a fertiliser company said, adding that thw backlog will increase.

“We will be asked to go for special banking arrangement (borrowing on the basis of subsidy receivables),” the official added.

As a part of cash flow management, the Ministry of Fertilisers among various other ministries was placed in a category with a quarterly expenditure cap of 20 per cent of the budget estimate. However, it has been moved to the no-cap category during the October-December quarter.

Industry sources said this has eased the situation slightly, but greater relief is still a while away.

Published on October 26, 2020

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