India likely to hike further subsidy on ‘decontrolled’ fertilisers, because of spiraling prices

With retail prices of di-ammonium phosphate (DAP) and muriate of potash (MoP) rising steeply since November 2021, the government may soon announce another sharp increase in the subsidy on these fertilisers in order to reduce the cost of the key farming inputs to farmers, ahead of the kharif sowing season.

In FY22, the government had hiked the nutrient-based subsidy (NBS) rates for phosphatic fertilisers by a massive 197%. Another sharp hike in the subsidy would amount to an unravelling of the ‘decontrol’ of the two soil nutrients effected more than a deade ago.

While farmers in the country continue to be insulated from the relentless rise in global prices of urea and natural gas, as the retail prices of the nitrogenous fertiliser are capped and subsidy on it is open-ended, the surge in DAP and MoP prices in the global markets inflates the farmers’ costs as the subsidy on the two products, although high, are capped.

Retail prices of phosphatic and potassic (P&K) fertilisers, including DAP were ‘decontrolled’ in 2010 with the introduction of a ‘fixed-subsidy’ regime as part of NBS mechanism. The subsidy on DAP saw an increase to 60% of cost in FY22, from a little over 30% previously.

However, the prices have continued to rise in the global markets even after the subsidy hike. As a result, from a level of Rs 18,000 a tonne in November 2021, the retail price of MoP has risen to the current level of Rs 32,000 per tonne. Similarly, the DAP now costs Rs 27,000 a tonne to Indian farmers as against Rs 24,000 a tonne in November last year.

It would be the third year in a row in 2022-23 that the annual budget spending on fertiliser subsidy will be much above the Rs 1-trillion mark. The subsidy bill rose 57% on year to Rs 1.27 trillion in FY21 as the government cleared arrears of about Rs 65,000 crore as part of the Covid-related packages. The surge in the international prices of fertilisers, as well as key ingredients, inflated the subsidy on fertilisers to Rs 1.4 trillion in FY22. Given the elevated global prices of key fertilisers and inputs, the subsidy could be in the range of Rs 1.7-2 trillion in FY23, an all-time high.

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