Fertilizer Subsidy Bill may Touch Rs.95,000 cr.

India’s spending on fertilizer subsidy for selling the farming ingredient below market price is expected to rise 12% in the current fiscal compared with the government’s estimates in February, according to the fertilizer ministry.

The fertilizer subsidy is expected to increase to Rs.95,000 crore in the year to 31 March from the Rs.85,000 crore estimate presented in the Union budget in February. The fertilizer ministry told the finance ministry about the increase in October, two officials independently said.

Fertilizer companies were allowed to set the retail prices of non-urea fertilizers such as diammonium phosphate (DAP) and muriate of potash (MoP) in April last year to cut the government’s spending on the products, but an increase in demand raised global prices, increasing the spending on subsidy.

About 75-80% of urea, which constitutes more than half the total fertilizer consumption in India, is produced locally, while the rest is imported. Most of the non-urea fertilizers is also imported, either as finished products or in intermediate forms.

Urea is still sold under the old regime, in which the government determines the market price of the product. The difference between the cost of production and the market price is paid as subsidy by the government.

Last year, urea contributed Rs.23,900 to the fertilizer subsidy bill. The figure this year is likely to be at Rs.24,500 crore. This, officials say, would mean that the figure for non-urea fertilizers will increase to about Rs.70,500 crore this fiscal from about Rs.61,100 crore in the year earlier.

Officials and analysts say that non-urea subsidy has ballooned mainly because consumption as well as the price at which the same are contracted in the international market have risen.

“The consumption of urea has remained steady in the last one year. Since the price of gas is regulated, the subsidy bill has not been impacted much,” said one of the two officials cited earlier.

An official of the Fertilizer Association of India, an industry lobby group, however, disputes this claim.

“Till April 2011, the government had fixed the subsidy for imported urea at $300 per tonne. This year, the figure has gone up to $350 per tonne. That should reflect in the subsidy figure for imported urea,” he said.

Out of the 27-28 million tonnes (mt) of urea India consumes each year, 6-7 mt is imported. The international spot price of urea is hovering in the range of $500-525 a tonne.

The fertilizer lobby group official said the subsidy bill in case of DAP and MoP has increased because the international long-contract price for both commodities has gone up substantially this year. While in 2010, the subsidy for DAP was fixed for a long-contract price of $500 per tonne, the same this year has been fixed at $612 per tonne. The prevailing spot price is around $680 per tonne. India annually consumes 10-11 mt of DAP, out of which 6-6.5 mt is imported.

For MoP, the 2010 subsidy was pegged at a contracting price of $350 per tonne; the same was increased to $420 per tonne this year. India imports about 5 mt of potash every year.

After price deregulation, companies trading in non-urea fertilizers have reaped profits, said Sanjay Jain, director of Taj Capital, a New Delhi-based investment firm that has interests in the fertilizer sector.

“Companies that import phosphate and potash have seen their margins go up since prices were deregulated,” he said. This year, non-urea consumption is likely to go up by 7-8% over the nearly 30 million tonnes that India consumed in 2010-11, he said.

On 25 October, Mint had reported that the government was assessing the impact of non-urea price deregulation, even as it firms up a policy to deregulate urea prices.

After deregulation, retail prices of these fertilizers have seen an inordinate increase. While in April 2010 DAP was sold at a government-mandated retail price of Rs.9,350 a tonne, the current price hovers at the Rs.18,300 per tonne mark. The current subsidy on DAP is Rs.19,673 a tonne. In case of MoP, the price has gone up from Rs.5,055 per tonne in April 2010 to Rs.11,300 now.

Source : livemint.com