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The Finance Ministry is likely to take a call on providing a special banking arrangement of ₹18,000 crore for fertiliser companies this week. This will help them get subsidy dues before the full Budget is presented in July.
“The subsidy allocated in the Interim Budget for the April-July period has already been exhausted, which is why the Fertiliser Ministry is seeking this special facility,” a senior Government official told Business Line.
Such an arrangement will ensure short-term credit from banks against the subsidy due to fertiliser companies which carries an interest rate of over 10 per cent. Eight per cent or equal to the yield on 10-year G Secs (Government Securities) will be paid by the Government, while the rest has to be borne by the companies.
This is the third consecutive year where the special credit facility is being made available to fertiliser companies.
However, the official said this year the situation is different as competition is heating up among banks to provide short-term credit, which in turn “will lower the overall interest liability.”
The official said the State Bank of India and Punjab National Bank were competing to provide such loans.
A special banking arrangement worth ₹5,000 crore was given to fertiliser companies in 2012-13, while two tranches of ₹5,500 crore and ₹9,000 crore each were made available in 2013-14.
The Interim Budget made a provision of ₹67,970.3 crore in the Budget for 2014-15. Out of this, ₹28,000 crore was provided for first four months (April-July,) for urea (imported and indigenous) and de-controlled fertiliser.
A change in the total amount is possible once the new Government presents its full Budget in July.
Meanwhile, the Fertiliser Ministry feels the total subsidy may touch ₹90,000 crore (including ₹10,000 crore on account of gas price revision) this fiscal.
The increase is also due to the change in fixed cost of urea. Earlier, the Government approved an increase in fixed cost by ₹150/tonne to ₹350/tonne. Since there is no revision in the selling price and the difference between cost and selling price is paid by the Government, the subsidy will go up.
However, the Ministry estimates that this is less than the industry’s estimates of ₹1.07-lakh crore, which includes the carry-over from the last fiscal.
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