Column : Price controls and fiscal cliffs
Urea manufacturers receive subsidy under the new pricing scheme (NPS) to cover the differential between the cost of production and distribution, and maximum retail price controlled at a low level.
DAP and complex fertiliser manufacturers receive subsidies under the nutrient-based scheme (NBS)—a ‘fixed’ amount linked to nutrient content, viz nitrogen, phosphate and potash.
The budget for 2012-13 provided for an allocation of around R60,000 crore towards fertiliser subsidies. These funds were exhausted in the first 4 months of the current fiscal. DoF needs an additional Rs 40,000 crore to fully discharge its liability in the current year. However, it was unable to secure Parliament’s approval even for a meagre R3,000 crore!
The finance ministry is in no mood to compromise on its commitment to rein in the fiscal deficit at 5.3% of GDP. Therefore, DoF faces a funds crunch that is getting transmitted to manufacturers.
Manufacturers of DAP and complex fertilisers have not received subsidy payments since July 2012. Payments to urea manufacturers were suspended in August 2012.
Cash flows of the fertiliser industry are squeezed to a point of affecting its ability to sustain operations (FAI has already warned of several plants having to shut down for want of money to pay for raw materials and other inputs). Payments to companies cannot be withheld any longer. Hence the recourse to banks!
DoF believes that loans
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