Budget2013: Fertiliser Subsidy - Underbudgeting continues...

Fertiliser subsidy is budgeted at almost same level for FY14 as per Revised Estimates for FY13. Usually we could never establish link between budgeted amount and actual requirement. This is typically under budgeted every year keeping in mind targets for fiscal deficit number at the time of presenting budget. This year Government has not paid industry its dues from June’12 on imported P&K fertilisers, July’12 on domestically produced P&K fertilisers and August’12 for domestically produced Urea. There was huge carryover of FY12 which was paid at the beginning of FY13, which resulted in budget getting exhausted in first 3-4 months itself during FY13.

FY14 may be marginally better with carryover of over Rs 25,000 crore from FY13 which will leave almost 40,000 crore for subsidy payments during FY14. It should also be seen in light of proposed per tonne subsidy reduction in P&K fertilisers by at least 20% - 25% under NBS for FY14. Subsidy on domestic Urea remains a worry as proposed allocation will fall short after settling bills from Sep’12 – Mar’13 during FY14. Gas price hike proposed by Rangrajan committee which proposes to almost double gas prices will have huge burden on production cost of Urea. Urea subsidy requirement may go up by over 10,000 crore if gas price is hiked by $4/mmbtu. Clearly FM has not provided for possible hike in subsidy needs after gas price increases, which leaves us with option of looking at price hike to pass on impact of gas price hike to farmers. 10% price hike in Urea can save Rs 1600 crore. Thus to mitigate full impact of over 10,000 crore on account of higher gas prices, Urea prices hike of over 60% will be required. We don’t foresee this to happen in a election year as government has faced protest even for 10% price hike from its own ministers being a politically sensitive issue which goes against the interest of large number of farmers.

SUBSIDY ON FERTILISERS  (Rs crore)	Actual	Budget	Budget (RE)	Budget
	2011-12	2012-13	2012-13	2013-14
1. Indigenous(Urea) Fertiliser	20208	19000	20000	21000
2. Imported (Urea) Fertiliser	13716	13398	15398	15545
3. Sale of decontrolled Fertiliser	36790	28576	30576	29427
Total	70714	60974	65974	65972