Can exceed budget by 60,000 to 85,000 Cr.
Can exceed budget by 60,000 to 85,000 Cr.
India’s fertilizer subsidy bill could hit a record high in the range of 1.65 lakhcrore to 1.9 lakhcrore this year, warranting an overhaul of the centre’s financial mathematics outlined in the budget, rating agency Crisil said on Thursday.
The government has proposed a £1.05 billion fertilizer subsidy bill for 2022-23, but that was before unprecedented increases in commodity costs and global fertilizer prices following Russia’s invasion of Ukraine. Unless the center steps in with fiscal intervention, fertilizer subsidy arrears could reach an all-time high of more than 75,000 crore by March 2023, the agency said.
“Our estimate assumes growth in fertilizer demand of around 3% and moderation in raw material and fertilizer prices in the second half of this fiscal year. If demand is higher than expected or input prices don’t ease in the second half either, the subsidy bill may increase to 1.8-1.9 lakhcrore,” Crisil said in a note.
Subsidies for urea, the retail selling price of which is set by the government, are expected to make the largest contribution to the subsidy bill. The government keeps the price of urea lower than market prices to encourage farmers to increase their crop yields through the use of fertilizers and continues to transfer subsidies to urea producers.
“While this largely protects the profitability of urea producers, the unchanged selling price despite rising costs means that the government has to pay a higher subsidy bill,” the rating agency stressed.
For urea-free fertilizers, where input costs have almost doubled, the government pays subsidies linked to nutrient-based rates to be announced later this year. For example, phosphoric acid and rock phosphate prices had increased by 92% and 99% respectively in the 12 months to March 2022.
“Given that Russia, Belarus and Ukraine are the main suppliers of non-urea fertilizers, the ongoing conflict will only aggravate the situation,” Crisil said. Although manufacturers have raised prices for such fertilizers, they may not be enough to cover higher input costs.
