The Union Cabinet on Thursday approved the proposal to bring down the quantum of subsidy on decontrolled fertilizers — phosphatic (P) and potassic (K) — for 2012-13.

The Cabinet Committee on Economic Affairs, headed by Prime Minister Manmohan Singh, approved the Department of Fertilizer's proposal to reduce subsidy on P&K fertilisers under the Nutrient Based Subsidy (NBS) policy. However, it is unlikely to have any adverse impact on the fertilizer prices.

Due to the strengthening of the rupee and bearish global price, The Department of Fertiliser had recommended reduction in subsidy on nitrogen (N) and potassium (K), which will be Rs.24 a kg each and Rs.21.8 a kg on phosphate (P) for 2012-13.

For 2011-12, subsidy of NPK had been fixed at Rs.27.15, Rs.32.33 and Rs.26.76 a kg, respectively, under the NBS policy. The new rates will be effective from April 1. The reduction in P&K fertilizers are expected to bring down the government's total subsidy bill by 20 per cent in the next fiscal.

The subsidy bill of P&K fertilizers alone is seen to touch Rs.52,000 crore with the overall subsidy bill touching Rs.90,000 crore this fiscal. Under the NBS regime, introduced from April 1, 2010, retail prices of 22 varieties of P&K fertilizers were freed. The government fixes subsidy on nutrients such as NPK, which is linked to the import parity price of fertilizers, di-ammonium phosphate (DAP) and muriate of potash (MoP).

The subsidy is reimbursed to fertilizer firms for selling the indigenous or imported crop nutrients at lower price to farmers. This constitutes a reduction in subsidy on DAP by Rs 4,763 a tonne and on MoP by Rs.1,554 a tonne, a reduction of 27 per cent and 10 per cent, respectively. Since India imports almost its entire supply of non-urea fertilizers, this reduction could help bring down the fertilizer subsidy bill substantially.

Fertilizers Association of India Director-General Satish Chandra said the reduction of subsidy for fertilizers would not lead to any increase in prices as the fertilizer prices in the international markets had been falling.

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