Fertiliser subsidy set to double to Rs 36,000 crore this fiscal

New Delhi, Nov 29 | Updated: Nov 30 2006, 07:13am hrs
The fertiliser subsidy bill in the current fiscal is set to almost double to Rs 36,000 crore against the budget target of Rs 18,752 crore. The increased expenditure may put a strain on the expenditure budget of the government.

To make matters worse, a whopping Rs 10,000 crore carried over from the last fiscal too remains to be cleared by the government. Put together, these two demands are expected to strain the governments expenditure budget in 2006-07.

This has not only increased the requirement of working capital and interest thereon, but also disrupted supply of inputs and consequently production, said US Jha, chairman of the Fertilisers Association of India (FAI) .

Recently, Madras Fertiliser Limited (MFL) and FACT had to discontinue operations due to lack of funds. Also, the domestic fertiliser industry has been rendered unviable and unattractive for investment due to strict control and low return on investment.

What compounds the problem is the practice of mopping up any gains due to improvements in the subsequent pricing norms which has reduced the dependability on the governments sovereign commitments in the long run, Jha said. Consequently, not a single fertiliser plant has come up in during the last nine years.

This also impacts agricultural growth that has been steadily declining from 4% in the 8th Five Year Plan to 2% in the Ninth Plan period and is likely to be 1.8% during the 10th Plan. This has resulted in imports of about 50 lakh tonne of wheat imports and the same quantity of urea. This is expected to add Rs 3,365 crore to the subsidy burden, industry sources said. To control the increasing subsidy bill, the government has to either increase the maximum retail price of fertilizers or deregulate the urea industry.