The next financial year will see the government’s subsidy bill reduce by around Rs 10,000 crore thanks to the cut in the nutrient-based subsidy rates and the low price of gas, according to Crisil.
“The reduction in nutrient-based subsidy (NBS) rates announced last week could trim the government’s subsidy bill for phosphatic fertilisers by Rs 5,000 crore next fiscal,” a report by Crisil said. “The cut, which follows declining international prices of di-ammonium phosphate and ammonia, would influence the contracted price for phosphoric acid, the key raw material, for fiscal 2017.”
“Overall subsidy bill reduction would be around Rs 10,000 crore next fiscal-Rs 5,000 crore through the cut in NBS rates, and a similar amount in urea subsidy because of lower gas costs,” Sudip Sural, Senior Director, CRISIL Ratings said.
The current price of gas in India is $3.82 per million British thermal unit, which is set to be changed in April. The consensus view is that the April review will see gas prices falling further.
The reduction in the subsidy bill could help the government reduce its fertiliser subsidy arrears of around Rs 35,000 crore that have been carried forward since 2012, Mr Sural added.
“But achieving a balanced nutrient ratio, which was one of the objectives of NBS, remains a far cry, given the continuing price disparity between urea and phosphatic fertilisers,” he said.
The Cabinet Committee on Economic Affairs on March 23 announced that the subsidy rates for nitrogen and phosphatic nutrients would be cut by Rs 5 per kg and Rs 5.4 per kg, respectively, amounting to a 25-30 per cent reduction. The subsidy rate for potassic nutrients was kept largely unchanged.
The fertiliser subsidy has been estimated at Rs 70,000 crore for 2016-17, lower than the Rs 72,437.58 crore estimated for the ongoing financial year.
Crisil finds that the poor monsoon over the last two years has created a vicious cycle in the fertiliser sector.
“Two consecutive years of deficient monsoon has burdened the fertiliser industry with excess inventory, estimated around 5 million tonne, which is equivalent to 90-100 days of consumption. That means manufacturers will have limited ability to increase prices to compensate for the reduction in subsidy, which, in turn, increases their dependence on monsoons,” the report said.
