Commodity price fall to lower govt?s fert subsidy bill

The government could come out a winner in the wake of the falling commodity prices. Oil and naptha have both come off their highs in the past week and this is much more than the fall in rupee against the dollar.

As per the government estimates, the fertiliser subsidy is pegged at Rs 1,25,000 crore. This is more than the defence budget of Rs 105,000 crore. The country intends to import about 60 lakh tonne of urea. Although the department of fertilier, which has resorted to strategic buying, has to shell out more in the wake of appreciating dollar, that would be compensated by the falling prices.

According to industry sources, the industry is paid at variable cost of production, and so the fall in naphtha prices should help. Naphtha prices at $563 metric tonnes is down by at least 11% from the yearly high.

?There is no doubt that crude oil prices are coming down, but the rupee is weakening and we have to pay in dollar.?? VN Rai, a senior consultant with a fertiliser major, told FE. Rai said it all depends on the combination of price of crude and the rupee?s movement against the dollar.

At a time when rupee is traded at more than 48, a dip in crude oil prices and naptha is welcome news.

?The impact will be felt after three months as the production cost is variabale and paid quarterly taking into account escalation in the cost of inputs. The feedstock cost constitutes 65% of all inputs,?? director general of Fertiliser Association of India (FAI) Satish Chander said.

The domestic productions stands at 200 lakh tonne as against the requirement of 260 lakh tonne during the current fiscal. The country has tied up with foreign suppliers for the remaining quantity.

Similarly, the country meets 92% of its DAP requirement through imports and entirely depends on imports for muriate of potash.

The department of fertilisers had earlier decided to do strategic buying instead of panic buying in the international market. The move is expected to bring the prices of urea and di-ammonia phosphate (DAP) by almost 50% and the government will save almost Rs 20,000 crore this fiscal.