Government to issue fertilizer bonds

Government to issue fertilizer bonds
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First Published: Thu, Aug 09 2007. 10 05 AM IST
Updated: Sun, Aug 19 2007. 03 29 PM IST
New Delhi: In an effort to fund part of the fertilizer subsidy, the government, for the first time, plans to issue fertilizer bonds. Like oil bonds issued to oil marketing companies that have to sell petroleum products at government-mandated prices which are often lower than their cost, the fertilizer bonds will carry a coupon rate and will be redeemed after a certain period. The coupon rate as well as the tenure of these bonds is not known at this point. The bonds will likely be tradeable.
Fertilizer bonds will be issued to the tune of Rs6,000 crore, and will be part of the Rs15,000 crore Prime Minister Manmohan Singh has asked the finance ministry to allocate as fertilizer subsidy. The subsidy is granted to fertilizer companies, because they sell their product at a government-mandated price that is lower than their cost of production.
The decision was taken at a meeting attended by agriculture minister Sharad Pawar, finance minister P. Chidambaram, chemicals and fertilizers minister Ram Vilas Paswan and principal secretary to the Prime Minister, T.K.A. Nair.
“The fertilizer ministry had asked for Rs17,223 crore to be allocated towards meeting the fertilizer subsidy payments. The government has decided to allocate Rs15,000 crore in the first supplementary budget (to be introduced in the monsoon session of Parliament beginning 10 August). This money will suffice for payments up to December,” said a senior official in the department of fertilizers, who did not wish to be identified. The balance could be allocated in the second supplementary budget which is due around December, explained the official.
The fertilizer industry isn’t happy at the thought of being issued bonds in lieu of cash. “We would have accepted bonds if we had surplus money, but right now the industry is facing a severe cash crunch. We need cash payments to continue production,” said a senior official of the Fertilizer Association of India (FAI), who did not wish to be identified.
FAI estimates that firms are owed around Rs12,000 crore towards subsidy. “The government does not pay us any interest on the outstanding amounts. Manufacturers have had to take expensive loans to meet the shortfall,” said another FAI official, who, too, did not wish to be identified. However, the firms have no option but to accept the bonds. “It is better than dues being rolled over to the next year,” said a senior executive of the Indian Farmers Fertilizers Cooperative Ltd, who did not wish to be identified.
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First Published: Thu, Aug 09 2007. 10 05 AM IST