A weak rupee coupled with an increase in natural gas prices will not only push the fertiliser subsidy bill for FY 14 to a much higher level than the budgeted R65,971 crore, but could also hurt fertiliser imports.
Imported urea alone may increase the subsidy bill by around R600-700 crore in the fiscal, said a senior official in the fertiliser ministry, adding that there has been around 6% decline in global prices of urea from $410 to $380 a tonne since April.
Since May, the rupee has depreciated by about 23%, adding to the woes of fertiliser import firms.
Concerned by the depreciating rupee, fertiliser minister Srikant Jena said: ?The impact of rupee fall on urea imports is cause for concern. However, the government is not imposing any curbs on imports right now. If the global suppliers form a cartel again, it would really be a problem for us?.
India imports both urea (partially) and non-urea complexes (almost fully). In 2012-13, India imported around 8 million tonnes of urea. Till August, the country imported around 2 million tonnes of urea.
The country requires around 30 million tonnes of di-ammonium phosphate (DAP) and Muriate of Potash (MoP) and complex fertilisers. The bulk of this requirement is imported.
When asked, a senior official in the fertiliser ministry said: ?The fertiliser subsidy will also go up as cost of production will go up significantly due to high prices of natural gas prevailing in the international markets?.
The government’s subsidy bill will increase as domestic production will be reimbursed at high gas cost.
Recently, the finance minister P Chidambaram also stressed on the need to reduce the overall subsidy bill including fertiliser and oil subsidies.
The government has been implementing the nutrient-based subsidy (NBS) policy on P&K fertilisers since April 2010, under which it announces a fixed subsidy for 22 grades of P&K fertilisers and their maximum retail price (MRP) is freed.
As per the NBS policy, the MRP of potash and phosphate fertilisers has been left open to be fixed by the manufacturers or importers and the amount of subsidy is fixed by the government for each nutrient. According to the policy, the government announces NBS rates for various nutrients, namely nitrogen, phosphate, potash and sulphur for P&K fertilizers covered under the policy every year.
?There is going to be a serious impact as the cost of imports are going up and the subsidy is low and we have to sell at lower price,? said Satish Chander, director, Fertiliser Association of India.
The fertiliser ministry estimated the subsidy on P&K fertilisers to come down by R4,500-5,000 crore to around Rs27,500 crore this fiscal.
In 2012-13, the government fixed subsidy on DAP at R14,350 a tonne and MoP at R14,400 a tonne. In the previous fiscal, the subsidies on DAP and MoP fiscal were at R19,763 and R16,054 a tonne, respectively.