The Hindu Business Line : Fertiliser subsidy bill overshoots budget estimates

For 2008-09, the Centre had originally provided for a sum of Rs 30,986.36 crore as subsidy payable to fertiliser companies in lieu of their selling nutrients to farmers at below cost of production or imports (after factoring in a notional return over costs).

Indigenous urea

This included Rs 12,900.37 crore towards indigenous urea, Rs 7,238.89 crore on imported urea and the balance Rs 10,847.10 crore on sale of so-called ‘decontrolled’ phosphatic and potassic fertilisers.

The revised estimates, however, show the total payment at Rs 75,848.75 crore. Of this, the major share is against sale of decontrolled fertilisers (Rs 48,351.10 crore), while amounting to Rs 16,516.37 crore for domestically produced urea and Rs 10,981.28 crore on imported urea.

Special securities

The above event, moreover, does not take into account ‘special securities’ of Rs 20,000 crore (face value) issued to fertiliser companies. These bonds – Rs 17,000 crore against decontrolled fertilisers and Rs 3,000 crore towards indigenous urea – technically constitute off-budget transactions as they do not involve any explicit cash outgo. The companies receiving the bonds can sell these to banks to meet their liquidity requirements.

If the Rs 20,000 crore issue of bonds is added, the effective fertiliser subsidy for 2008-09 works out to Rs 95,848.75 crore – nearly Rs 65,000 crore more than the budget estimate. But even this is considered insufficient by the industry, which claims that the actual requirement based on the difference between the cost it has incurred and the controlled prices of the products sold would be in the region of Rs 114,000 crore this fiscal.

Uncovered gap

“There is an uncovered gap of about Rs 20,000 crore, which we hope will be bridged during the coming fiscal,” said an official from the Fertiliser Association of India (FAI). For 2009-10, however, the Interim Budget has provided only Rs 49,980.25 crore – Rs 33,600 crore on decontrolled fertilisers, Rs 8,580.25 crore on indigenous urea and Rs 7,800 crore on imported urea.

“The assumption seems to be that international prices of both finished fertilisers and intermediates will rule soft. But if they do not, as it happened last year, the current provisions will prove inadequate. Moreover, it is possible that the new Government that would come will take steps for decontrol of prices at farm-gate level, which will also reduce the subsidy burden”, the official added.

The landed price (cost & freight) of urea is currently ruling at $220-230 a tonne, after scaling levels of $800 a tonne last September. The corresponding prices of di-ammonium phosphate (DAP) have also eased to around $380 a tonne (from the peak $1,305 in September). Phosphoric acid, a key raw material for manufacturing DAP, had touched $2,310 a tonne in June, whereas it is now at more manageable $760 a tonne.

Manageable next fiscal

The Department of Fertilisers had at one point of time – when global prices were showing no signs of easing – expected the total subsidy requirement for 2008-09 at around Rs 145,000 crore, before pruning it down to below Rs 1,10,000 crore. “On the whole, it looks 2009-10 would be much more manageable and the monies thus released can be used for other purposes”, the industry official added.