Subsidy bill for the fertiliser sector has shot up to Rs 1,25,000 crore, approximately Rs 20,000 crore more than the defence Budget of Rs 1,05,600 crore for 2008-09.
Interestingly, this comes close on the heels of external affairs minister Pranab Mukherjee?s warning that overnment?s liability on account of fertiliser subsidy this year might exceed the defence Budget unless it gets its ?Act together?.
In a demand note sent to the committee of secretaries (CoS) entrusted with the task of tackling the ballooning fertilisers subsidy, the department of fertilisers (DoF) has made a demand for an extra Rs 88,785 crore from the finance ministry. According to the industry, the total subsidy bill has already crossed Rs 1,25,000 crore against the budgeted Rs 30,986 crore for the current fiscal.
No fresh capacities have come up in this politically-sensitive sector for the last 10 years, increasing India?s dependence on costly imports. Fertilisers? retail prices have remained stagnant since 2002 with minister of fertilizer Ram Vilas Paswan showing no signs no of revising them.
Mukherjee, who was the country?s finance minister from 1982 to 1985, had voiced his views on the dire straits of India?s fertiliser sector in a missive to Planning Commission deputy chairman Montek Singh Ahluwalia on September 19. In a Plan panel meeting summoned by Prime Minister Manmohan Singh last Saturday to discuss the Integrated Energy Policy, it was decided that the panel would draft a Cabinet note on the policy that proposes setting up fertiliser units abroad.
?The integrated energy policy recommendations refer to the need for setting up fertiliser production facilities overseas. If we do not get our Act together, our liability on fertilsier subsidy this year might exceed our defence budget,? he wrote. ?As a matter of fact, MEA is already looking into the issue and the need to tie-up long-term supply arrangements for fertilisers to meet our growing requirements as a matter of strategic priority. We would be closely working on this with the department of fertiliser and other stake holders to develop coordinated and target oriented policy approaches,? he added.
?The budgetary allocation of Rs 30,986 crore for the fiscal has already been exhausted, except for funds allocated for urea. Since the additional allocation supplementary is likely to be delayed, a special arrangement for Rs 22,000 crore has been made by finance ministry to enable fertiliser majors to raise funds from the banks against subsidy receivables.
This mechanism will facilitate smooth operations of the sector up to October 2008 only,? the DOF note to the CoS says.
The department has also stressed that the allocation will be required in cash as fertiliser companies are not in a position to bear losses on account of receipt of fertiliser bonds in lieu of cash against subsidy.
The cash allocation is also necessary to carry on the requisite import of urea in government account beyond the October deadline.
?We have reviewed the subsidy requirement of the industry in view of the surge in input costs caused by high feedstock prices which have gone up by about 40%, costly imports and mounting subsidy arrears. A detailed note will be presented to CoS,? a senior official in the fertilisers ministry said.
On the other hand, several urea units have been reeling under liquidity crunch because of inordinate delay in recovering major portion of delivered cost that is subsidy, this has increased he requirement of working capital of the companies.
Fertiliser majors like Iffco, Indian Potash Ltd, National Fertilizers Ltd, Tata Chemiclas, PPL, Zuari India Ltd and Chambal Fertilisers have been facing severe financial crunch because of issuance of fertiliser bonds worth Rs 7,500 crore to fertilisers manufacturers last year to partly offset the outstanding subsidy dues. These long-term bonds are tradable at heavy discounted prices.
The DoF?s demand for additional subsidy would exert a considerable adverse impact on the finance ministry?s efforts to stick to the budgeted expenditure. The rising trend in gas prices will also exert additional pressure on urea prices, with prices now being discussed at $ 6 per mmbtu. Some of the companies have been making purchases at $ 12 per mmbtu in the spot market.
Ironically, the government is paying far higher subsidy on imported fertilisers that their domestic counterparts, eating away increasingly large portion of available funds. The delivered cost of imported urea is Rs 31,000 per tonne as against the indigenously produced urea of Rs 13,000 a tonne.
If gas is made available to the entire urea industry, the average cost will come down to Rs 8,600 per tonne and the saving in susbsidy bill of the government will increase to Rs 44,000 crore.
