Fertiliser subsidy bill set to shoot up by Rs 8000 cr

NEW DELHI: The Centre's fertiliser subsidy bill is set to shoot up by an estimated Rs 8000 crore mark with the department of fertilizers (DoF) mooting higher P and K nutrient subsidy to companies. This, after companies clinched phosphoric acid and DAP imports at price levels much higher than the benchmark rates prescribed by the government.

Once approved, this would be the third reality check on import prices that the DoF will be resorting to since November last year for 2011-12,. The rates were revised upward in February again, but clearly this increase too has failed to take a pragmatic view of fast soaring global fertiliser prices. Industry usually contracts imports for new crop year by end February/early March. But marked increase in prices put a spoke in that timetable.

The BE for this fiscal is pegged at a low Rs 49998 crore. Higher international prices of inputs and raw materials, leading to higher import prices for key fertilisers, are now threatening to pressure food prices. Now, with a normal south west monsoon forecast for this summer, fertiliser demand is expected to go up, even if not to last summer's levels, but global raw material prices is likely to temper home supply..Demand for the kharif season is pegged up 4% since last summer, at 28.8 mt compared to 27.7 mt .

In the case of potash, industry has already announced an import "holiday" last week, primarily on account of high international prices, contending that the country had enough supplies for complexes for the coming kharif sowing season. The move was meant to pressure cartelising global suppliers to peg their prices down but it appears to be having little effect, with a major German supplier to Europe announcing a further price hike after April 22. This, although India is the among the world's top two importers.

"We have put up a note for the upward revision the Cabinet for approval," an official from the department told ET. While potash is used mostly for commercial crops such as tobacco, cotton and sugarcane, the government's worries are higher in the case of phosphatic fertilisers including DAP and complexes which are key to food crops at sowing time.

"If NBS rates are not revised once again, it will pressure industry margins on DAP (di-ammonium phosphate) and complexes, while absence of MoP (muriate of potash) in the market this kharif is a certainty," sectoral analyst Tarun Surana of Mumbai based Sunidhi Securities and Finance said. Fertilizer manufacturers have already hiked retail prices of di-ammonium phosphate (DAP) and complex fertilizers by up to 15% in the last 3-4 months.

Almost 90% of India's requirement of the phosphatic (P) fertilizers is met with imports while for potassic (K) fertilizers the country is totally dependent on foreign sources. Prices of phosphoric acid, a key ingredient in phosphatic fertilisers, are currently hovering around $700/tonne, $100 higher than last year. The benchmark price set by the government for potash, at $390/tonne, is nowhere near the supplier cartel's current quote of $500/tonne.

Under the nutrient-based subsidy (NBS) regime introduced from April 1, 2010, the retail prices of P & K fertilizers have been freed .but industry claims price hikes are being kept reined in for the present in order not to jeopardise farm output..The government provides a fixed annual subsidy based on per kilo of nutrient - K or P- in the fertilizer, leaving the industry to fix retail prices.

Projections are that there will be a 12% hike in subsidy for P nutrients (to Rs 31/kg from the current earlier Rs 29.41/kg) compared to only Rs 26.28/kg last year. For K (phosphatic) nutrient, the benchmark price is expected to be revised to Rs 26.50/kg compared to the February level of Rs 24.63/kg , spelling a 1% hike in FY 2011-12 compared to FY 2010-11. Industry estimates are that the hike in benchmark rates for P and K nutrients from existing rates alone will shoot up the government's subsidy bill by Rs 3500 crore.

Urea is still to be freed for imports by the private sector but even parastatals were unable to clinch imports at the Rs 20.11/kg level set by the government earlier. The revised price level announced in February 2011, however, was realistic and more reflective of ground realities and actual import prices, at Rs 27.48/kg, spelling an 18% hike. (22 Apr, 2011, 04.56AM IST, Prabha Jagannathan,ET Bureau )