he fall in global commodity prices has begun to directly help India?s fiscal consolidation efforts. Taking advantage of declining global fertiliser prices, the government on Wednesday reduced the subsidy on phosphatic and potassic fertilisers by 15%, potentially saving the exchequer about Rs 4,600 crore this financial year. As a result, state subsidy on these two commodities could fall this year to their lowest in six years of around Rs 25,000 crore, off from the historic Rs 48,555 crore it scaled in 2008-09, which saw the global financial meltdown and spiralling commodity prices.

On the oil subsidy front also, there?s good news for the government as the under-recoveries of oil marketing companies have come down steeply in the second half of April. The under-recovery on high speed diesel (HSD) declined to Rs 3.80/litre in the second half of last month from Rs 6.42/litre in the first half. Apart from the softening of crude, the ongoing deregulation of diesel prices and the phasing-in of the direct benefit transfer for LPG subsidy disbursal will bring down oil subsidy for this fiscal. OMCs reported Rs 1,61,029 core as gross under-recoveries in 2012-13.

Soon after Wednesday?s Cabinet decision to cut fertiliser subsidy, IFFCO slashed the price of di-ammonium phosphate (DAP) by Rs 75 per bag (of 50 kg) to Rs 1,125, indicating that the fall in global prices still affords room for importers to reduce the farmer price of DAP and muriate of potash (MOP).

?We are reducing the price of DAP to Rs 22,500 from Rs 24,000 per tonne effective from April 1,? IFFCO managing director US Awasthi said. He said global prices have come down by Rs 3,500 per tonne, while the government has reduced subsidy by about Rs 2,000 per tonne.

Finance minister P Chidambaram told reporters after a meeting of the Cabinet here that the actual subsidy outgo on phosphorous and potash fertilisers in 2013-14 will depend on farmers? consumption of the commodity. The finance ministry, which spent Rs 30,576.12 crore to meet the subsidy bill on these two fertilisers last fiscal, had in February allocated Rs 29,427 crore for the current year.

Phosphorous and potash together account for slightly less than half of the Rs 65,972 crore fertiliser subsidy originally allocated for the current year.

As per a policy in force from April, 2010, subsidy for various deregulated fertilizers such as phosphorous, potash and sulphur are decided at the beginning of the year, based on which state assistance per kilo of a particular brand is calculated.

?This (subsidy for 2013-14) will be lower than the rates approved for 2012-13. As a result, subsidy on DAP will be Rs 12,350 per tonne and on MoP, it would be Rs 11,300 per tonne,? Chidambaram said.

The fertiliser ministry would put in place a mechanism to ensure that lowered MRP is fixed by suppliers and benefit of reduction in global price is passed on to farmers, he added. Bulk of the nearly 30 million tonnes of DAP, MoP and complex fertilisers India needs is imported.

While phosphorous and potash prices are deregulated with partial government subsidy, price of another major plant nutrient, urea, is still under state control. Since producers and importers sell this commodity at state-fixed price, subsidy burden on the government is high on this. The heterogeneity of raw materials used by various producers makes it difficult for the government to give pricing freedom to them for fear that the less efficient naphtha-based producers may go out of market and indirectly increase the country?s import dependence. Besides, dependence on naphtha is likely to increase as natural gas production in the country is dwindling unexpectedly.