Fertiliser subsidies soar 62% this fiscal on rising input costs: Crisil Report

The Centre’s fertiliser subsidy bill is set to soar by 62 per cent over the budgeted amount to Rs 1.3 lakh crore this fiscal due to the massive rise in raw material prices despite lower demand, says a report by Crisil. “An unprecedented spike in natural gas prices and other raw materials is set to inflate the fertilisers subsidy bill by a whopping 62 per cent or Rs 50,000 crore to Rs 1,30,000 crore this fiscal over the budgeted Rs 79,530 crore,” the report said.

This is despite sales volume declining 10 per cent from the record level last fiscal, Crisil said in its report. To encourage farmers to use fertilisers for better crop yield, government keeps their sale price significantly lower than market rates, and reimburses the difference to manufacturers directly.

Budget provisioning for such subsidies have been inadequate, leading to regular build-up of arrears. However, last fiscal the government cleared arrears through an additional disbursement of Rs 62,638 crore helping companies nurse their balance sheets to better health.

However, what followed was a massive spike in input costs, the biggest of which is natural gas. Crisil expects the price of natural gas, the feedstock that accounts for 75-80 per cent of the total cost of production for urea plants, to rise over 50 per cent this fiscal.

This is on top of the prices of key raw materials like phosphoric acid and ammonia, for non-urea fertiliser companies, that are already up 40-60 per cent over the past fiscal.

All this will now have to be absorbed by the government. Consequently, the report estimates the subsidy bill to increase by Rs 50,000 crore over what has been budgeted for this fiscal to Rs 1.3 lakh crore. The government 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 be a shortfall of Rs 30,000 crore, largely for urea, the report said.

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