NEW DELHI: The centre's fertiliser subsidy bill is set to rise by 62% due to an unprecedented spike in the prices of natural gas and other raw materials, said rating agency Crisil in a note.
The inflated bill will rise by Rs 50,000 crore to Rs 130,000 crore this fiscal, compared with a budgeted Rs 79,530 crore despite the sales volume of fertilisers declining by 10 per cent on year, it added.
To encourage farmers to use fertilisers for better crop yield, the government keeps their retail sales price (RSP) significantly lower than the market rate, and reimburses the difference to manufacturers through subsidy payments. But government provisioning for such subsidy payments have been inadequate, which has led to regular arrears that posed a challenge to the sector. But last fiscal, the government cleared the arrears through an additional disbursement of Rs 62,638 crore.
"The government has been proactive given the strategic importance of the fertiliser sector. It has already announced an additional subsidy of Rs 21,328 crore (Rs 14,775 crore in May 2021 and Rs 6,553 crore in October 2021) for non-urea fertilisers. Despite this, there will likely be a shortfall of Rs 30,000 crore, largely for urea.” said Nitesh Jain, Director, CRISIL Ratings.
Now rising input costs have become another major concern. Crisil expects the price of natural gas — the feedstock that accounts for 75-80% of the total cost of production of urea plants — to rise over 50% this fiscal. For non-urea fertilisers, prices of key raw materials such as phosphoric acid and ammonia are already up 40-60% over last fiscal. Now, all of this will have to be absorbed by the government, which means the subsidy burden will rise.
The only marginal offset is that sales of fertilisers are expected to decline a significant 8-10% this year because the spatial distribution of the southwest monsoon has been erratic. Additionally, the high-base effect created by last fiscal’s sales volume, and limited availability of fertilisers in the international market will also have a bearing. Last fiscal, fertiliser sales had risen 8% to an all-time high of 66 million tonne.
The profitability of urea makers is unlikely to be affected because the higher cost of gas is a pass-through with the government fixing the retail sale price. For non-urea fertiliser makers, while the selling price is not fixed, the government pays subsidy as per the Nutrient-Based Subsidy Scheme rate.
