The fertiliser subsidy in the current fiscal is likely to exceed the budgeted Rs 1.75 trillion owing to a recent rise in global prices of urea and several inputs for farm nutrients, a surge in consumption and the possibility of future spike in energy prices.
This follows a sharp fall in global fertiliser prices witnessed since the beginning of the year.
Industry sources said that while there was fall in the prices of fertilisers like urea, di-ammonium phosphate (DAP) and potash in first four months of the current fiscal, compared to a record-high levels a year ago, volatile geo-political situations and the possibility of a spike in liquefied natural gas, a key ingredient for urea production in the coming months, may push the cost of fertilisers further.
“Fertiliser subsidy may just exceed the budget estimates for the current fiscal if prices do not become too volatile in the coming months,” an official associated with the industry told FE.
The official said the prices of urea, DAP and potash has started to move up since August.
In July this year, global urea FOB (free on board) prices dropped by more than 48% to $282/tonne, from $549/tonne, which prevailed a year ago. The official said that although prices have started to move up in the last few weeks, urea prices are expected to stay in the range of $350/tonne – $ 400/tonne in the coming months.
India imports about 20% of its annual urea consumption of 36 million tonne (MT).
The global cost and freight (CFR) prices of DAP declined by 53% in July to $440/tonne from $940/tonne a year ago. India imported 6.6 MT of DAP in FY23, while domestic consumption was only around 4.5 MT.
Meanwhile, muriate of potash (MoP) global CFR prices had dropped to $422/tonne in July from $590/tonne a year ago and sources said that MoP prices have declined further in the recent months, as sufficient supplies have come from Russia. India imports around 3 MT of potash annually.
According to official data, against the estimated fertiliser consumption of 5.12 MT in August, the actual sales exceeded 8 MT because of reports of diversion of urea into non-farm use, including cattle feed and industrial mining explosives.
Urea prices to farmers is subsidised, with no revision of the maximum retail prices since 2018. The subsidy is now over 90%. The subsidies for DAP and MOP are “fixed,” but the last two years saw the subsidy element to rise in the six-monthly revisions, as the government sought to insulate the farmers from the price spike of imported farm nutrients.
Against a budget estimate of Rs 1.75 trillion for 2023-24, the government has spent Rs 45,112 crore during April-June.
Meanwhile, there are reports about Russian companies stopping offering fertilisers such as DAP to India at discounted prices due to tightening global supplies after becoming the biggest supplier to the country last year.
“The burden of high fertiliser prices would not be passed onto consumers,” an official said.
Against a budget estimate of Rs 1.75 trillion for 2023-24, the government has spent Rs 45,112 crore during April-June.
Fertiliser subsidy in FY23 stood at an all-time high of 2.54 trillion, owing to the spike in global commodity prices. It was for the third year in a row that fertiliser on soil nutrients had crossed 1 trillion.
Since March 2018, the retail urea price has remained unchanged. A scheme allows retail prices of the key soil nutrient to farmers to be kept at `242 per bag of 45 kg, even as the current cost of production is around Rs 2,200/bag.
The government announces nutrient-based subsidy rates for phosphatic and potassic fertilisers for kharif and rabi seasons annually.
In terms of volume, imports account for a third of domestic soil nutrients consumption of around 60 MT annually.
The government releases the fertiliser subsidy to manufacturers, who sell their produce to farmers through their retail chains. Since October 2016, the subsidies have been released to the farmers with the use of point of sale (PoS) devices installed at around 0.2 million outlets. Since March 2018, beneficiaries have been identified through Aadhaar numbers, Kisan Credit Cards and other documents.