The government is likely to defer payment of R27,000 crore or nearly a third of the total fertiliser subsidy demand for this financial year, to the next. This is part of its efforts to put curbs on revenue expenditure which is on track to exceed the Budget estimate of R10.97 lakh crore by a wide margin.
With revenue buoyancy nearly absent and expenditure tough to control, the government is likely to report a fiscal deficit which is about 1 percentage point of GDP higher than estimated; however, it wants to ensure its financial management doesn?t look wayward.
And hence the attempts to shift part of the fertiliser subsidy burden to next fiscal. Financial year 2012-13 could see a spike in non-tax revenue from disinvestments and 4G spectrum auctions.
As reported by FE earlier, gross budgetary support (GBS) or the Budget outlay for the central Plan is likely to see only modest growth in 2012-13 as against 18% in the current fiscal.
A deferment of fertiliser subsidy payments, however, won?t go down well with the industry, which is burdened with heavy borrowing costs.
The gap between receipts and expenditure in the first three quarters of the fiscal crossed 92% of the budgeted fiscal deficit for the full year of R4.1 lakh crore. So, there is little room for the government to give more funds to fertiliser companies to sell at regulated prices. High global prices of mureate of potash and DAP have pushed the fertiliser subsidy bill for the fiscal to over R90,000 crore, only a trifle lower than the all-time high figure of R1 lakh crore in 2008-09. Besides, the government?s total revenue receipts in the nine months of the fiscal has been 15% less than the same a year ago.
In fact, fertiliser companies have already been allowed an extra R13,779 crore subsidy in November in addition to the nearly R50,000 crore initially earmarked. For the oil sector, the finance ministry so far sanctioned an additional R45,000 crore as subsidy, taking the total disbursal so far to three times the budgeted R23,640 crore.
A senior government official confirmed to FE that there would be no more subsidy this financial year for the oil and fertilizer sectors towards the fourth quarter before union budget 2012-13 is announced.
Fertiliser major Iffco\’s CMD US Awasthi said producers do not have the financial strength to accommodate the carrying-forward of huge amounts of subsidy. ?It can break the backs of many companies. We are already suffering on account of high borrowing costs,? said Awasthi. Carrying forward so much of subsidy to the next year would mean that the requirement for 2012-13 would be around Rs 1,10,000 crore, he said.
According to him, the government should sanction only what it can pay in time, pass on the subsidy to producers without delay and give a clear signal that the remaining cost should be realised from consumers. That amounts to the partial lifting of price control on urea, the most commonly used fertiliser on account of its concessional price. Deregulation means the subsidy is decided at the beginning of the year and further cost fluctuations get reflected in the retail price.
The move to decontrol the price of urea was recently suspended at the last moment as experience showed that pricing freedom had led to the other two fertilisers ? phosphorous and potash ? to turn much more expensive. While their prices went up sharply in 2010-11 itself when they were freed, in the first seven months of this fiscal, prices of products like DAP have gone up 80% to R18,000 a tonne.
— with inputs from Himani Kaushik
