As the Centre’s finances are under pressure, the finance ministry may not agree to the chemicals and fertilisers ministry’s request for a special banking arrangement (SBA) of about Rs 25,000 crore for fertiliser manufacturers and importers hit by the time lag in subsidy payments, sources said.
According to industry estimates, the subsidy arrears are estimated to be around Rs 30,000 crore. The government gives urea, phosphatic and potassic fertilisers to farmers at subsidised prices through these companies (while the urea is sold to farmers at controlled MRP, the retail prices of the other two fertilisers could vary as the subsidy is fixed).
The SBA is a mechanism which was resorted to in the past to mitigate the negative impact of outstanding subsidy payments. However, this time around, the finance ministry is even disinclined to accord this short-term loan facility to the fertiliser companies as it reckons that repaying these loans next year would be burdensome, given the Pay Commission and one-rank-one-pension obligations expected for the year.
The Centre created SBA facility of Rs 13,961 crore in FY14 and Rs 7,000 crore in FY15 and these loans were repaid with interest from the Budget of FY15 and FY16, respectively.
With a potentially lower divestment proceed (possibly half of the target of Rs 69,500 crore) and an anticipated shortfall in tax collections of about Rs 50,000 crore making it difficult to achieve the FY16 fiscal deficit goal of 3.9% of GDP, the government may not be able to pay more cash subsidy in the current fiscal year in supplementary demand for grants, the sources said.
Officials expect the pay commission award (report to be ready by end-December) and OROP alone to bloat the Centre’s salary and pension bill by Rs 50,000-Rs 70,000 crore next year. In FY16, the Centre has budgeted Rs 72,998 crore for fertiliser subsidy, 75% of which have already been disbursed to the manufacturers and importers. This included part of the subsidy carried forward from FY15.
Though official view is veering towards saying that it would be difficult for the Centre to give additional cash subsidy or SBA, a final decision on the request of the fertiliser department would be taken by the finance ministry in the next two-three weeks, sources said.
Fertiliser subsidy accounts for 32% of the Centre’s FY16 major subsidies (on account of food, fertiliser and fuel) estimate of Rs 2.27 lakh crore. While the Centre has projected fuel subsidy to halve to about Rs 30,000 crore in FY16 due to decontrol of diesel and direct cash benefit transfer for LPG, it is yet to find a suitable model for giving direct benefit to farmers as being demanded by the fertiliser companies.