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India is likely to overshoot its fertiliser subsidy bill for this financial year by ₹30,000 crore ($4.2 billion), three sources with direct knowledge of the matter said, and the Centre could tap public sector banks (PSBs) to fund the extra spending.
The Narendra Modi government had budgeted ₹70,080 crore for fertiliser subsidies for FY19, but the sources said nearly half of the money was used to settle dues from the previous year.
A rise in fertiliser prices overseas and a fall in the rupee also made imported fertilisers more expensive, lifting the total subsidy requirement for the year to ₹1 lakh crore, the highest ever, the sources said.
Since the Finance Ministry denied extra money to the Ministry of Chemicals and Fertilisers for this year, the Centre is considering a “special banking arrangement” for local fertiliser companies, two of the sources said.
Fiscal drain
Such a move would be in keeping with other recent financially-draining measures taken by the government to win the support of farmers, small-business owners and the less well-off, after the ruling party suffered setbacks in State elections and with a general election due in months.
The bank route could also help the government meet its decade-low headline fiscal deficit target of 3.3 per cent of GDP.
The Comptroller and Auditor General of India (CAG) last week criticised the Centre for increasingly resorting to ‘off-budget financing’ such as asking banks to fund subsidy gaps and said such arrangements had “fiscal implications”.
A Finance Ministry spokesman declined to comment. The Fertiliser Ministry did not immediately respond to an email seeking comment.
In the past, too, the government has rolled over subsidy requirements by using special arrangements with banks such as SBI or by delaying payments to companies.
“Considering the poor tax collections, we don’t think the government would pay the entire subsidy this year,” said a senior official with a co-operative fertiliser company, declining to be named or to identify his employer. “Like last year, it will be rolled over to the next year.”
For the next fiscal year the Fertiliser Ministry has asked for ₹1 lakh crore in subsidies from the Finance Ministry.
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