The upcoming Budget is expected to have a strong focus on the farm sector. Although the government’s target of doubling farmer’s income by FY23 looks elusive, ICRA expects it to focus on initiatives to improve crop realisations as well as non-farm incomes.
The budgetary allocation may be increased towards MGNREGA as well as initiatives for improving non-farm incomes, in areas such as livestock farming and food processing. Additionally, the budgetary allocation towards the development of irrigation facilities, the crop insurance scheme and higher agri-credit is expected to continue.
With agriculture remaining the focus, the agri-input sector, such as agrochemicals and fertilisers, is expected to benefit.
The budgetary allocation towards the fertiliser subsidy for the upcoming year remains a key monitorable for the fertiliser industry.
According to ICRA’s estimates, the subsidy requirement for the sector will be around Rs 1.3-1.4 lakh crore for FY23 given the elevated commodity prices and the outlook expected to remain firm. It expects the budgetary allocation for the fertiliser subsidy to be in line with its estimate. It remains a possibility that the government may not allocate the full amount of the expected subsidy at the outset in the Budget for FY23. It may calibrate the subsidy budget during the course of the year, as in FY2022, depending on the evolving subsidy requirement during the year.
However, the outright allocation in the Budget will be a comforting factor for the industry. For FY22, the subsidy allocation of around Rs 1.41 lakh crore is expected to remain adequate for the sector.
During FY22, the fertiliser availability, particularly for phosphatic fertilisers, witnessed significant headwinds due to unavailability and elevated prices in the international markets. The government has been deliberating on steps to improve the domestic production of phosphatic fertilisers. ICRA expects it to outline steps to increase domestic production through incremental investments.
Some of the steps that the GoI can take include rationalisation of import duty on phosphoric acid, ammonia and imported natural gas, to improve the competitiveness of the domestic fertiliser players. It may be expected to develop a roadmap to increase balanced use of fertilisers in the country and reduce dependence on particular fertilisers. The implementation of the true form of Direct Benefit transfer (DBT) for the fertiliser sector has been an ambitious project for the government. However, given operational challenges in implementing, ICRA does not expect it to materialise in the near to medium term.
--Sabyasachi Majumdar is Senior Vice President and Group Head-Corporate Ratings at ICRA. The views expressed in this article are his own.
