In an effort to part-finance the burgeoning fertiliser subsidy, the government is planning to float fertiliser bonds worth Rs 12,000 crore. These bonds likely to have a coupon rate between 8 and 9% and will be tradable.
The move follows finance ministry’s decision not to make necessary provisions towards fertiliser subsidy for the current fiscal which may touch a whopping Rs 50,000 due to steep rise in the cost of fetiliser inputs, against the budgeted Rs 22,451 crore.
It is learnt that the finance ministry has agreed to provide an additional subsidy of Rs 17,000 crore to the sector. Of this, 70% will be issued as bonds and the remaining 30% will be paid as cash. A decision in this regard has been taken at a meeting of a group of ministers (GoM), which has agriculture minister Sharad Pawar, finance minister P.Chidambaram, chemicals and fertiliser minister Ram Vilas Paswan and principal secretary to the Prime Minister TKA Nair last month. According to industry sources, this has been done to maintain fiscal discipline wherein subsidy burden will be shifted to next year and the industry may get the subsidy for the current fiscal.
In order to manage fiscal deficit, the finance ministry had stopped payment of subsidy to the tune of RS 10,000 crore during 2006-07. The amount was disbursed this year from the budgetory provisions made for the current fiscal.
The industry needs an extra Rs 25,000 crore for this fiscal.
The fertiliser industry is not happy with the move. ?We would have accepted bonds if we had surplus money, but right now the industry is facing severe cash crunch, we need cash payments to continue operations,? said a senior official of Fertiliser Association of India (FAI).
FAI estimates that an amount of Rs 12,000 crore is pending with the government towards subsidy. The government does not pay any interest on the outstanding amount. Manufacturers have had to take expensive loans to meet the gap.
Fertiliser companies have, however, no option but accept bonds, as it is better than dues being rolled over to the next year.
Because of the uncertainty over subsidy payment, cooperatives and private sector companies have not tied- up imports of Di-ammonia Phosphate (DAP) for this year’s Kharif season. The price of DAP has shot up to $500 a tonne, compared to $240 per tonne last year.
With no fresh urea capacity addition for over a decade, the government will have to import about 6 million tonne urea this fiscal that too at $300 per tonne which is higher by Rs 4000 a tonne in the domestic market. This is expected to further jack up the fertiliser subsidy bill.
