Mumbai- The fertiliser subsidy bill may overshoot by Rs 40,000 crore this fiscal from the budgeted Rs 2.15 lakh crore due to the surge in pooled natural gas prices, taking the total financial support to over Rs 2.55 lakh crore, according to a report.
Natural gas is the key raw material for manufacturing urea. And the price has jumped manifold since the war on Ukraine began in late February as Russia is the world’s largest supplier of gas. However, the western world has been trying to ban it as part of their economic blockade.
Following this, the government since April 1 has increased the prices of domestically produced gas by a whopping 150 per cent.
The government has been proactive in addressing the subsidy requirements of the industry.
In addition to Rs 1.05 lakh crore approved in the budget, an additional Rs 1.10 lakh crore was announced in May to offset surging feedstock and product prices.
The retail selling price of urea is fixed by the government. It is kept as low as 85 per cent below the market prices to encourage farmers to use fertilisers for better crop yield. Urea makers are compensated through subsidy payments.
According to Naveen Vaidyanathan, a director at credit rating agency Crisil, amid the Russia-Ukraine war, the price of pooled gas has risen 10 per cent quarter-on-quarter in September against the earlier expectation of prices softening.
Each dollar’s increase in the price of pooled gas raises the subsidy burden by Rs 7,000 crore on domestically produced urea, which accounts for 85 per cent of the production volume.
The price of imported urea, which accounts for the balance 15 per cent volume, remains elevated at over USD 650/tonne, almost double the historical levels. Together, this means overall subsidies rising to Rs 2.55 lakh crore this fiscal.
Notably, this estimate has not factored in any revision in the nutrient-based subsidy (NBS) rates for the second half, which comprises the rabi season. For non-urea fertiliser makers, the government pays subsidies according to the NBS rates, which are reviewed in April and October every year.
While prices of phosphoric acid and rock phosphate, key ingredients for non-urea fertilisers, have risen 12 and 37 per cent, respectively, in the first six months through September, NBS rates were hiked steeply in the first half. Given that prices of these two feedstocks remain high, NBS rates for the second half would bear watching.
Given this, rating agency Crisil on Thursday said the government will have to ensure that manufacturers are paid on time on one hand and on the other, the available gas is distributed to help the industry maintain credit metrics, saying “any delay in increased allocation and disbursement will lead to higher working capital requirement and moderate their credit metrics”. (PTI)