The Centre’s fertilizer subsidy bill is set to soar 62% over the budgeted amount to ₹1.3 lakh crore this fiscal due to the massive rise in raw material prices despite lower demand, says a report.
An unprecedented spike in natural gas prices and other raw materials is set to inflate the fertilizer subsidy bill by a whopping 62% or ₹50,000 crore to ₹1,30,000 crore this fiscal over the budgeted ₹79,530 crore.
This is despite sales volume declining 10% from the record level last fiscal, Crisil said in its report on Monday.
To encourage farmers to use fertilizers for better crop yield, government keeps the sale price significantly lower than market rates, and reimburses the difference to manufacturers directly.
But for long, budget provisioning for such subsidies has been inadequate, leading to regular build-up of arrears. However, last fiscal, the government cleared arrears through an additional disbursement of ₹62,638 crore helping firms nurse balance sheets to better health.
However, what followed was a massive spike in input costs, the biggest of which was of natural gas.
Crisil expects the price of natural gas, the feedstock that accounts for 75-80% of the total cost of production for urea plants, to rise more than 50% this fiscal. This is on top of the prices of key raw materials like phosphoric acid and ammonia, for non-urea fertilizer companies, that are already up 40-60% over the past fiscal. All this will now have to be absorbed by the government.