Fertilizer subsidy likely to shoot up to a record Rs 2.50 lakh crore

According to budget estimates for FY23, the government had estimated the total fertilizer subsidy bill at Rs 1.05 lakh crore, including Rs 42,000 crore for the NBS scheme.

Also, when it came to the fertilizer subsidy bill for FY22, sources said that the actual fertilizer subsidy bill stood at Rs1.65 lakh crore versus the budgeted estimates of Rs 79,500 crore. “The total fertilizer subsidy stood at Rs 1,62,132 crore in the 2021-22 fiscal,” sources said.

Apart from this, if needed, the government will also propose a hike in urea fertilizer subsidy to the farmers to shoulder the burden because of high global prices, sources added.

The move comes on the backdrop of the Union cabinet's April 27 announcement, where the government decided to hike the NBS scheme. On Wednesday, the Union Cabinet approved a subsidy of Rs 60,939.23 crore for phosphatic and potassic fertilizers, including Di-Ammonium Phosphate (DAP), for the first six months of this fiscal.

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“The government will not increase retail prices of urea and also provide adequate subsidies to ensure that the maximum retail prices of non-urea fertilizers remain at the present level,” the sources said.

Sources added that due to higher subsidy, selling price of both, urea and DAP are significantly lower in India compared to global peers, especially when compared with countries such as US, China and Brazil.

"The subsidy bill for 2022-23 could go up to Rs 2.25-2.5 lakh crore. Due to the COVID-19 pandemic, the fertiliser production, imports and transportation have been disturbed globally, the ripple effects of which are being seen across countries, including India," sources said.

Leading exporters such China, which contributes 40-45 percent of phosphatic imports to India, have reduced their exports because of a decline in production.

Other geopolitical factors such as the COVID-19 pandemic, the ongoing Russia-Ukraine war and global sanctions on Iran and Russia, have lead to a serious impact on the international fertilizer prices, translating into a hike in prices.

Additional factors such as high freight charges, which have inched up by four times, have also contributed to an increase in fertilizer prices globally and in India, the sources said.

The sources shared that prices of urea have increased to $930 per tonne in April 2022 from $380 per tonne in April 2021. Similarly, DAP prices have gone up to $924 per tonne in April 2022 from $555 per tone in April 2021.

In India, the impact on the farmers due to the high fertilizer prices has been cushioned by the government as farmers buy the two key fertilizers at highly subsidized rates.

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“Urea is available at Rs 266 for a 45 kg bag while DAP is sold at Rs 1,350 for a 50 kg bag. The present subsidy on urea is around Rs 3,700 per bag and Rs 2,501 on DAP,” sources added.

India is also in continuous dialogue with Russia to ensure that the old orders for fertilizers from the country are being shipped into India, but no fresh import contracts have been entered into due to the prevailing uncertainty over the payment mechanism.

The efforts are being made to ensure that “there is no shortage of fertilizers in the country during both the kharif (summer-sown) and rabi (winter-sown) season. In this effort, the government is already in discussions with global majors to import key soil nutrients including from countries such as Morocco, Saudi Arabia, Oman, among others," sources added.

To ensure continuous supply, Union Chemicals and Fertilisers Minister Mansukh Mandaviya is likely to visit these countries, among others, soon to secure imports, on both short and long-term basis, sources added.

Also in an assurance to farmers, sources said that the “government is working hard to ensure there is no shortage of fertilizers in the country” and added that the “country has sufficient stocks for the ongoing kharif season, and there would be no problems during the rabi season as well.”

It is to be noted that fertilizer consumption during rabi season is 10-15 percent more compared to the summer crops.

The domestic annual production of urea is around 260 lakh tonne against the demand of 325 lakh tonne. The gap is filled through imports.In the case of DAP, the domestic production is 50 lakh tonne, and the country imports roughly 70-75 lakh tonne to meet the requirements.

The government is reviving several closed urea plants to make India self-sufficient. At present, the domestic cost of production for urea is much cheaper than the imported urea. However, in the case of DAP production, it is entirely opposite in the current scenario.

The government is also promoting use of nano-urea, which was launched last year by IFFCO. Nano-urea is in a liquid form and costs Rs 260 per 500 ml bottle. One bottle is roughly equal to one bag of traditional urea.

Currently, the nano-urea production is 2 lakh bottles per day, and is set to increase multiple times by the year end. The government is also examining a proposal to permit IFFCO to produce nano-DAP.

On Wednesday, the government announced a subsidy of Rs 2,501 per bag on DAP, 50 percent more than the existing subsidy of Rs 1,650.

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The government is making available fertilizers, namely urea and 25 grades of P&K fertilizers, to farmers at subsidised prices through manufacturers/importers.

Under the NBS scheme, which is being implemented since April 2010, a fixed rate of subsidy (in Rs per kg basis) is announced for nutrients, namely Nitrogen (N), Phosphate (P), Potash (K) and Sulphur (S), by the government on an annual basis.

The subsidy rates per kg for the nutrients N, P, K, and S are converted into per tonne subsidies on the various P&K fertilisers covered under the NBS.

In the case of urea, the Centre fixes the maximum retail prices and reimburses the difference between the maximum retail price and production cost in the form of subsidy.