New Delhi: The finance ministry has agreed to allow a special banking arrangement (SBA) for the immediate disbursement of funds to pay long-pending subsidies to fertilizer firms, especially domestic urea manufacturers.
This comes in response to a plea by the department of fertilizers (DoF) for such an arrangement. In an SBA, companies are offered loans against subsidy receivables over and above their normal working capital limits, against sovereign guarantee. This was exercised last year as well.
A finance ministry official, declining to be identified, said that while the amount to be disbursed under the SBA hasn’t been finalized yet, it is expected to be less than the Rs.12,000 crore that the DoF had demanded.
“For two-three months, they (fertilizer companies) will take it from the banks, and then we give it to them through the budget. We will adjust it in the revised estimates when the budget-making process for the next fiscal begins and it will be taken care of in the supplementary demands for grants,” he added.
About Rs.30,000 crore of subsidies were due as of 31 March to the fertilizer industry, which is grappling with mounting interest on borrowed working capital.
“We have always been asking for it. Industry should be paid. We are happy now that it’s happening. They (DoF) promise to pay the rest by December, which is okay,” said Satish Chander, director general, Fertiliser Association of India (FAI), an industry lobby.
He, however, clarified that the development will not impact the case the industry is fighting in the Delhi high court against the fertilizer department, seeking interest payments on subsidy dues. The next hearing is on 25 September.
In a letter dated 9 September, the DoF acknowledged that it had no money left for subsidy claims for domestic urea from June onward, blaming huge carry-over liabilities and insufficient budgetary allocation. Funds for non-urea fertilizers were also on the verge of exhaustion.
Total need for additional funds, according to the note, is around Rs.35,000 crore, with an immediate requirement of Rs.12,000 crore to be met via SBA.
Mint reported on 11 September that the DoF had made a request for additional funds to the department of expenditure, ministry of finance.
The fertilizer department is suffering from this severe liquidity crisis because it wasn’t asked by finance ministry to place it’s requirement for funds during the first supplementary in the monsoon session, said a DoF official, also declining to be named. Fund disbursement for the second supplementary happens only by December.
An analyst with a Mumbai-based brokerage said the finance ministry’s decision to agree for an SBA was a welcome move that would “calm the nerve of the industry”. Else, fertilizer companies would have been forced to hike the prices of non-urea fertilizers, and this would not be conducive to the government in an election year, he said, requesting anonymity.