India’s fertiliser subsidy set to touch record Rs 1.65 lakh crore in FY23: CRISIL

India’s fertiliser subsidy is set to touch a record of Rs 1.65 lakh crore and an additional subsidy and revision in the nutrient-based subsidy (NBS) rates are crucial in order to sustain the credit profiles of fertiliser makers, Crisil said in a report.

“Our assessment assumes 3 per cent year-on-year growth in demand for fertilisers and a moderation of raw material and fertiliser prices in the second half of this fiscal. If demand is higher than expected, or input prices do not soften even in the second half, the subsidy bill may inch up to Rs 1.8-1.9 lakh crore,” the report added.

According to the report, in the past two fiscals, the government has paid an additional Rs 1.2 lakh crore and increased the budgeted subsidy.

“Over 85 per cent of the subsidy arrears could be contributed by urea. This is because pooled gas prices – a blend of domestic gas and imported LNG considered for billing to fertilisers plants – had shot up more than 75 per cent last fiscal, and is expected to remain elevated for most part of 2022-23, because of the Russia-Ukraine conflict,” Crisil Ratings director Nitesh Jain said. At the same time, retail prices of urea have stayed put, increasing the government’s subsidy burden, he noted.

The retail selling price (RSP) of urea is fixed by the government. To encourage farmers to use fertilisers for better crop yield, the government keeps the RSP significantly lower than the market rate, and reimburses the urea makers through subsidy payments.

Likewise, prices of phosphoric acid and rock phosphate – ingredients for non-urea fertilisers – have also gone up by 92 per cent and 99 per cent, respectively, in the past 12 months through March 2022.

Further, given that Russia, Belarus and Ukraine are the major suppliers of non-urea fertiliser ingredients, the ongoing conflict will only exacerbate the situation, it stated. While non-urea makers have hiked prices, it may not be sufficient to cover the escalation in cost, Crisil said. For non-urea fertiliser makers, the government pays subsidy as per the nutrient-based subsidy (NBS) rates, which are yet to be announced for this fiscal.

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