Finance Ministry to Demand Fertilizer Subsidy of Rs 2.25 trillion for FY24

Due to high global commodity prices, subsidies were seen at an elevated level for the second year in a row.

"The finance ministry has assured us of making adequate provisioning under the fertilizer subsidy budget,” an official told the media, adding that pre-budget consultations with the finance ministry and other stakeholders were still going on.

The Union Fertiliser Ministry is expected to demand a subsidy on soil nutrients of around Rs 2.25 trillion for the next fiscal year, which is roughly the same amount as the expenses expected to be incurred to subsidize the retail prices of these farming inputs in 2022-23.

The fertilizer subsidy is expected to rise by more than 114% to Rs 2.25 trillion this fiscal year, especially in comparison to the budget estimate (BE) of Rs 1.05 trillion for 2022-23, due to higher global prices for fertilizers and natural gas, the key feedstock.

The central government is sending fertilizers to all states as needed, and it is the responsibility of the respective state governments to ensure availability within the states through proper intra-district and inter-district distribution, according to a press statement.

The Centre denies any shortage of fertilizers during the rabi season, claiming that there is an adequate supply.

It would be the fourth year in a row that yearly Budget expenditure on fertilizer would surpass Rs 1 trillion, compared to a lower range of Rs 70,000-80,000 crore in previous years.

Last year, the subsidy on farm nutrients was Rs 1.6 trillion (revised estimate).

According to ICRA, the subsidy bill for FY23 will be around Rs. 2.5 trillion, compared to the budget estimate of Rs. 1.05 trillion, because the cost of urea remains high due to high gas prices.

Domestic urea production is approximately 26 million tonnes (mt), with 9 mt of soil nutrients imported to meet demand. In 2021-22, India imported nearly 9.1 million tonnes of urea, worth approximately Rs. 40,000 crores.

Almost half of its diammonium phosphate (DAP) needs are imported (mostly from West Asia and Jordan), while domestic Muriate of potash (MoP) demand is purely met by imports (from Belarus, Canada, Jordan, etc).

Prime Minister Narendra Modi recently stated that the Central government has spent more than Rs 10 trillion in the last eight years to make sure that farmers in the nation are not plagued by high global fertilizer costs.

Mansukh Mandaviya, the minister of fertilizer, said that the government would not transmit the cost of rising global prices to farmers.

With the implementation of a 'fixed-subsidy' regime as part of the NBS mechanism, retail prices of phosphatic and potassium (P&K) fertilizer, including DAP, were 'decontrolled' in 2020. However, the DAP subsidy increased to 60% of the cost in FY22, up from a little more than 30% previously.

In the case of urea, farmers pay a fixed price of Rs 242 per bag (45 kg) against a production cost of around Rs 2650 per bag. The government provides the balance as a subsidy to fertilizer units.

Meanwhile, the fertilizer ministry stated on Friday that there is more than enough fertilizer available in the country to meet the needs of the Rabi season. The government is sending fertilizers to all states as needed, and it is the responsibility of the respective state governments to ensure availability within the states through proper intra-district and inter-district distribution, as per the statement.