Rising Fertilizer Subsidy Bill to Hit Government Hard

The government seems to have scored some goodwill points in the recent past over its ability to make good some of the under-recoveries reported by the oil marketing companies over the sale of fuel at subsidised rates by them. The government directed its upstream oil companies to pay a higher share of the subsidy bill and thereby not only helped the domestic refiners to recover some losses but also managed to shave off part of its burden.

However, its woes are far from over. Faced by a subdued revenue mop-up and no success on the disinvestment front, the deficit for the current fiscal is expected to go well over the 4.6 per cent projected level. Adding pain to this is the fertiliser subsidy bill which is expected to run up to over Rs 1 lakh crore. As per media reports, the fertiliser industry has already coughed up an excess of Rs 17,000 crore over the allotted Rs 50,000 crore in last year’s budget.

One of the major reasons for this sharp rise in the fertilizer subsidy burden is the use of excess urea by farmers in the country as non-urea (complex) fertilisers’ availability was under pressure. The scarce availability of the complex fertilisers also led to an increase in its retail prices which further impacted the demand for them. Readers must note that the subsidies on urea fertilisers are higher as compared to complex fertilizers.

Moreover, the government’s inability to de-regulate urea and bring it under the nutrient-based subsidy scheme (NBS) also added to the subsidy bill. The dilly-dallying over the new urea investment policy has also been a major overhang on the industry as it has seen no new capacity additions over the past few years.

Recently, Finance Minister Pranab Mukherjee voiced concerns over the rising subsidy bill on the eve of the Union Budget 2012-13 to be announced on March 16. According to media reports, he said that a ballooning subsidy burden has resulted into sleepless nights for him. This is a very rare expression by a man who is otherwise very restrained over such economically sensitive topics.

In conclusion, though it’s pretty evident that the pressure of a rising subsidy bill this fiscal will inevitably cast a dark shadow, we believe that the speeding up of reforms and policies in order to bring about new investments into the sector and improve the entire business dynamics will auger well not only for the fertiliser sector but also for the government’s overall finances.