The government’s fertiliser subsidy expenses is likely to decline by around 20% to Rs 2 trillion in next financial year from an estimated Rs 2.5 trillion in in the current fiscal because of decline in global soil nutrients prices, rating agency ICRA has stated.
However, the agency has stated that because of high international prices of raw materials and finished fertilisers, currency depreciation, and firming up of pooled gas prices, the subsidy requirement is expected to reach its highest ever level at around Rs. 2.5 trillion in FY23.
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“The availability of fertilisers in international markets have improved, and the prices have also started to correct, which is a good sign for the domestic fertiliser industry as India imports a sizeable portion of key raw materials as well as finished fertilisers (almost 25-28% of finished fertilisers are imported),” Sabyasachi Majumdar, Group Head & Senior Vice President, Corporate Ratings, ICRA Limited, said.
The rating agency has noted that there were some delays in subsidy clearances in the first half of the current fiscal, which along with elevated prices, had kept the working capital requirements high for the fertiliser industry. “While a major chunk of the subsidy was cleared in the last couple of months, resulting in lowering the subsidy outstanding, the current fiscal will witness elevated interest costs for the industry,” it stated.
In terms of volume, imports account for a third of domestic soil nutrients consumption of around 60 million tonne annually. The country imports about half of its requirement of diammonium phosphate (DAP) and around 25% of urea requirements are met through imports.
While stating that the Indian fertiliser industry remains dependent on urea imports to meet domestic demand, ICRA has said “nano urea has the potential to replace some portion of conventional urea, in the case of DAP and murate of potash (MOP), the import reliance will continue, with no additional capacities likely in India in the segment.
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Last week, Arun Singhal, secretary, department of fertilisers had stated that there is a likelihood of softening of global prices of fertilisers further. Stating that future volatility in global prices could not be predicted, he said that future course of Russia and Ukraine conflict would have an impact on the global price movements of social nutrients.
Trade sources said that urea price has declined by 31% to $478 a tonne from $700 a tonne prevailed in October last year while the DAP prices have softened by 35% to $700 a tonne currently from $920 a tonne prevailed three months ago.
In case of urea, farmers pay a fixed price Rs 242 per bag (45 kg) against the cost of production of around Rs 2,650 per bag. The balance is provided by the government as a subsidy to fertiliser units. The retail prices of phosphatic and potassic (P&K) fertiliser, including DAP were ‘decontrolled’ in 2020 with the introduction of a ‘fixed-subsidy’ regime as part of Nutrient Based Subsidy mechanism announced by the government twice in a year.