The ongoing Russia-Ukraine dispute is likely to erode government funds on agricultural inputs such as fertilisers and its subsidy bill is expected to increase by Rs 10,000-15,000 crore. With a risk of the financial deficit rising, India is looking to find alternative solutions.
The government, on March 14, sought the Parliament’s nod for net additional spending of over Rs 1.07 lakh crore, including about Rs 15,000 crore towards fertiliser subsidy.
What is a fertiliser subsidy?
Farmers buy fertiliser at subsidised prices, which is below the price fixed by market-based supply and demand requirements or costs to import.
For instance, the maximum retail price (MRP) of neem-coated urea has been fixed by the government at Rs 5,922.22 per tonne, and its average cost and cost to domestic and foreign producers amount to Rs 17,000 and Rs 23,000 per tonne, respectively. The difference, here according to crop production costs and import price, is supported by the government as a grant.
MRPs of non-urea fertiliser are disposed of or repaired by companies. The Centre, however, pays a flat subsidy for each tonne of these nutrients to ensure they are of “sound standards.”
Why is the government staring at a high subsidy bill?
The next fertiliser subsidy bill, set at Rs 1.05 lakh crore, is expected to be higher than estimates, according to an Indian Express report.
As farmers store fertiliser before the start of the sowing season, the impact is immediate. In addition, rising natural gas prices, which are an important source of urea production, will lead to a rise in domestic urea prices. The Russia-Ukraine war crisis has disrupted the global supply chain and the natural gas price has inflated in the global market.
The Ministry of Finance expects oil prices to fall in the next 2-3 months as the impact of tensions could be tempered by higher production from the United States and OPEC member states, as per the Indian Express report. Also, higher tax revenues are expected to help keep the fiscal deficit close to 6.9 percent.
“India’s fiscal deficit would be close to 6.9 percent as given in the Revised Estimates as higher tax revenues will offset the gap in the non-tax revenues and higher fertiliser subsidy outgo. As of now, we will remain close to the numbers given in the RE for this year and in the Budget estimates for next fiscal,” a senior finance ministry official was quoted as saying by the Indian Express.
Why can't India produce enough?
The lack of a unified policy has forced several top domestic fertiliser producers such as Tata Chemicals and Aditya Birla Group to withdraw or reduce their business in the country. They cited such factors as the misuse of urea, delays in the payment of subsidies to producers and the lack of investment in the sector to justify the decline, according to a Quartz report.
What is being done to increase imports?
India’s demand for 30 lakh tonnes of potash per year is met with imports from Belarus and Russia. The war with Ukraine has forced countries like India, which use fertilisers containing potash, phosphate and nitrogen, to now look for other suppliers, especially as Russia may also consider suspending fertiliser shipments following the Western sanctions.
With imports from Russia and Ukraine ruled out at least in the short term, India is boosting fertiliser imports from nations including Canada and Israel to ensure sufficient supplies for the coming summer sowing season, as per Reuters.
Saudi Arabia, Morocco and China had been major suppliers of phosphate in the past. But China has already restricted DAP (diammonium phosphate) exports over the past one year. So, India has already been forced to reach out to Morocco along with Saudi Arabia and Jordan.
