BENGALURU/NEW DELHI : Subsidies given by the government to compensate companies for selling fertilizers to farmers below market price are likely to exceed the revised budget estimates as the war in Europe has led to soaring prices of soil nutrients and their feedstocks, a government official said.
“The fertilizer subsidy bill for the current fiscal will exceed the revised estimates as the Russia-Ukraine conflict has led to a spike in urea prices. Other key raw materials such as ammonia and phosphate are also seeing upward pressure on prices due to the rise in oil and gas prices. We did not anticipate it during the budget-making exercise," the official said on condition of anonymity.
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The war has pushed up global prices of natural gas, used to make the most widely used urea fertilizer, and is posing payment challenges to importing potash from Russia and Ukraine.
The official said the government expects the subsidy bill for FY22 to overshoot the revised estimates by ？10,000-15,000 crore. The allocation for fertilizer subsidy for FY22 was raised by nearly 76% in the revised estimates made in the FY23 budget documents presented in February to ？1.4 trillion from ？79,000 crore at the beginning of this fiscal.
Queries sent to the ministry of finance remained unanswered till press time.
Until January, ？1.16 trillion had been spent, which is 83% of the revised estimate. The revised estimate usually accounts for the expected spending in the March quarter, but the surge in commodity prices in the wake of the Russia-Ukraine war is now upsetting this calculation. The higher spending on subsidies at a time the government’s asset sale plans have suffered a blow will further complicate India’s fiscal position.
The official said the FY23 subsidy bill is also expected to exceed the budget estimates, but it will not be revised in the Appropriation Bill to be passed by the government during the budget session and will only be considered for revision next fiscal. The budget session of Parliament resumes on Monday.
For FY23, spending on fertilizer subsidy is estimated at ？1.05 trillion. Ukraine supplies 10% of India’s urea requirements. According to Crisil Ratings Ltd, India imported 9.8 million tonnes (mt) of urea to meet a total requirement of over 35 mt in FY21. India also imported a third of the 32 mt of non-urea fertilizers used in FY21, Crisil said.
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Mint reported earlier that the war in Europe would impact not just India’s imports of key fertilizers but also domestic production of the commodity because of difficulties in securing ammonia, a key ingredient of commonly-used fertilizer urea. India imports about 30% of its total fertilizer requirements, and about 8% of this comes from Russia and Ukraine. While it seems that the fertilizer bill may go up in the next fiscal, too, the government does not want to revise it in the FY23 budget documents as it would necessitate redoing the entire calculation for FY23. “Besides, there is a possibility that during the course of the year, prices would ease and may meet the budget target," the official said.
Fertilizer subsidy outgo from the budget is a function of the difference between the retail price to the farmer and the cost of supply by companies, and the quantum of consumption. In the case of urea, the retail price is fixed, and the subsidy element is kept flexible. That is, any escalation in the cost of supply would translate into a higher subsidy requirement.
However, in the case of complex fertilizers such as potash, phosphorous and nitrogen, the subsidy element is fixed, which would mean an increase in the cost of supply will lead to fluctuations in price to the farmer.
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