Despite the fertiliser subsidy bill falling by a half to about Rs 60,000 crore this fiscal on cheaper crude, cash inflows to fertiliser companies will be short by Rs 17,000 crore. The government plans to roll over these dues to the next fiscal, as part of its measures to keep the fiscal deficit within the budgeted figure of 6.8% of GDP.
Official sources say the finance ministry has ruled out any additional fertiliser subsidy outgo this year over the allocated Rs 52,980 crore, implying that firms like Kribhco, Indian Potash and Iffco would have to wait for the next fiscal to get compensated for selling fertilisers at government-fixed retail prices.
The fertiliser subsidy bill last year stood at a record Rs 1.17 lakh crore, of which close to Rs 96,000 crore was paid, and the rest was carried over to this year.
Staggering the subsidy grant will help the finance ministry keep the fiscal deficit?the gap between revenue and expenditure met through borrowing?closer to the Budget estimate of 6.8%. Adhering to the deficit target will be challenging for the ministry, as tax breaks and higher expenditure to stimulate the economy have been in place for more than a year now. Besides, the pressure on government finance is expected to continue next fiscal as well. However, considering the high inflation in food prices, the government would like to step up agricultural productivity. This could favour fertiliser-makers.
One probable source of funds the finance ministry is banking on for giving some extra subsidy this year is the last instalment of advance tax payments expected by mid-March.
The subsidy provided this year?including the budgeted Rs 49,980 crore and the Rs 3,000 crore supplementary grant in December–is 45% less than the subsidy given last year, which comprises Rs 75,848. 8 crore Budget subsidy and Rs 20,000 crore paid through bonds—which is not part of fiscal deficit calculations. This year?s subsidy allocation was estimated lower because of the anticipated slide in the cost of local and imported fertilisers in tune with the lower global crude oil prices.
The fertiliser department is also not ready to implement a nutrient-based subsidy system— wherein subsidies would go directly to farmers—proposed in the last Budget. Once fertiliser prices are de-regulated and subsidies go directly to the consumer, there could be a mismatch between the rise in prices and the subsidy given. Besides, a period of high food price inflation (18% annual food price inflation in the last week of January) is not the right time to implement the new regime, the department believes.
?Since the systems for direct transfer of subsidy to the farmers are not in place, we will have to continue with the practice of routing the subsidy through the industry for another year at least,? a fertilizers and chemicals ministry official told FE. A Planning Commission official told FE the government should also find a way to ensure that subsidies given directly to the farmer is used for buying fertilisers and nothing else.