Budget 2018 might have Rs 740-bn allocation towards fertiliser subsidy

The Union Budget 2018-19, expected to be tabled in Parliament next week, can allocate around Rs 740 billion for fertiliser subsidies, and the amount is around 5.7 per cent more than the Budget Estimates (BE) of 2016-17 and 6.9 per cent higher than the Revised Estimates (RE) of 2016-17.

Sources said the higher allocation could be on account of an expected increase in natural gas prices because of a projected rise in petroleum rates from $55 a barrel in 2017-18 to an average of $65 a barrel in 2018-19.

The Mid-Term Expenditure Framework (MTEF), tabled in Parliament last year, had pegged the 2018-19 fertiliser subsidy at Rs 700 billion.  

“The provisioning could be higher because of expected increase in gas price — a key input for companies. Gas prices have already gone up by 10 per cent in the second half of 2017-18 from $2.5 MMBtu to 2.8 MMBtu,” K Ravichandran, senior vice-president and group head, corporate ratings, Icra, told Business Standard.

For 2017-18, the Centre is expected to release around Rs 692.6 billion for fertiliser subsidies as against a budgetary provision of Rs 700 billion.

However, despite an expected allocation higher by around Rs 40 billion in the 2018-19 Union Budget, industry sources said it would not be good enough to wipe out the dues.

At the end of 2017-18, the estimates show around Rs 280 billion could be unpaid dues, which would be slightly lower than the Rs 300 billion in the previous year.

The drop in unpaid subsidies could be due to the government clearing bills quicker and some relief from gas prices in the first half of 2017-18. “This won’t last long,” a senior industry official said.

Most industry analysts and players expect the backlog in fertiliser subsidy payments to rise as the Centre goes in for a massive nationwide roll-out of Direct Benefit Transfer (DBT), though the government has a contrarian view.

In a deviation from the existing model of DBT, in fertiliser the end-user (farmer in this case) identifies himself through a point-of-sale device and when he buys a bag of fertiliser, the subsidy on that is transferred to the account of the company within seven days.

However, critics said instead of expediting the process it could end up delaying it because currently subsidy is credited once fertiliser moves from the company gate to district headquarters, while after DBT it will be credited within seven days after the final sale. 

“In 2018-19, DBT needs to be fine-tuned or else it would end up elongating the cycle of payments for the companies pushing up the backlog,” Ravichandran said.

In November, the Cabinet Committee on Economic Affairs had accorded ex-post facto approval for implementing a Special Banking Arrangement for Rs 100 billion for paying outstanding claims on account of fertiliser subsidies in 2016-17.

At present, the government is providing subsidies to importers, and manufacturers of urea and phosphatic and potassic (P&K) fertilisers for selling fertilisers at subsidised rates to farmers. 

The maximum retail price (MRP) of urea is statutorily controlled by the government and is kept at Rs 5,360 per tonne (exclusive of central/state levies). Further, fertiliser manufacturers charge ran extra MRP of five per cent on neem-coated urea.