Govt mulls linking fertiliser subsidy to actuals

New Delhi, Jan 5 | Updated: Jan 6 2006, 05:30am hrs
Union Budget 2006-07 is likely to take into consideration the anticipated cost of key inputs such as gas, naphtha and fuel oil while calculating fertiliser subsidy for the next fiscal. This is the first time the subsidy is being determined on actual industrial cost.

The chemicals and fertilisers ministry has prepared a note in this regard, and the same will be forwarded to the finance ministry soon, a senior official told FE.

Cost of other components like quantity of fertiliser likely to be consumed as well as cost and quantity of imported finished nutrients may also be reckoned while fixing the quantum of subsidy, he said.

The fertiliser industry has made a strong pitch for a subsidy based on actuals. At present, the concession on fertiliser is the difference between the normative production cost as approved by the government or the cost of imported materials and the maximum retail price indicated by the government.

Increase in input costs has jacked up the subsidy requirement for the industry. However, since the input costs are capped in the subsidy regime, the industry requires additional subsidy to pass the benefit thereof to the farmers.

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Increase in input costs has jacked up the subsidy requirement for the fertiliser industry
The budget provisions have been constantly falling short of requirement
Unpaid subsidy bills involving large amounts have been carried forward year after year

Similarly, an increase in consumption also pushes up the subsidy requirement. The trend has been witnessed during the recent past, when the subsidy bill increased due to steep increase in prices of major inputs like naphtha, fuel oil, ammonia, phosphoric acid, rock phosphate as also higher prices of imported urea, DAP and MoP. Consequently, the budget provisions have been constantly falling short of requirement as the provisions have not been realistic.

As a result, unpaid subsidy bills involving large amounts have been carried forward year after year. For the current fiscal, additional provisions for fertiliser subsidy amounting to Rs 6,200 crore are needed to cover the additional requirement of subsidy due to rise in input costs and imported finished stocks over the previous year, besides a backlog of about Rs 3,800 crore from last year.

This has irritated the industry, which is lobbying hard to get the anticipated input cost in the budgetary estimates and to avoid stoppage of the payment.

The government, the sources said, is considering initiating the move.