Govt to shell out Rs9,000 cr more for fertilizer subsidy

Govt to shell out Rs9,000 cr more for fertilizer subsidy

New Delhi: The government plans to provide an additional Rs9,000 crore as fertilizer subsidy this year, taking the overall outgo on account of the subsidy in 2007-08 to Rs46,451 crore. However, an industry representative said this would still be lower than the Rs53,000 crore the government actually has to pay to clear all its bills.

Ram Vilas Paswan, the minister for chemicals and fertilizers, said that “the finance ministry will make the necessary provisions (for the Rs9,000 crore) in the second supplementary budget to be presented before Parliament in the winter session."

The finance ministry had provided Rs15,000 crore in the first supplementary budget, in August, after its initial budget allocation of Rs22,451 crore proved inadequate for subsidy payments.

Half of the Rs15,000 crore was supposed to be paid through the first ever issue of fertilizer bonds. These bonds have not yet been issued, but fertilizer secretary J.S. Sarma said they would be out by the end of the month.

“We are discussing the terms and conditions of the fertilizer bonds with the finance ministry," he added.

Paswan also said the government would move towards a nutrient-based subsidy at an additional cost of Rs1,200 crore as reported by Mint on 5 November.

To encourage farmers to use fertilizers, the government subsidizes their cost. However, it does so by getting fertilizer firms to sell at a certain cost, which is lower than the cost of production, and compensates them for this.

According to R.C. Gupta, deputy director general of the Fertiliser Association of India, an industry body, the government will probably have to pay more towards fertilizer subsidy this year. He said fertilizer companies would want the Rs9,000 crore to be paid in cash, not bonds.

“We have already written to the government asking them to pay us the additional money (Rs9,000 crore) only in cash. The industry is starved for cash and any more bonds would be strictly unwelcome," Gupta said.

The department of fertilizer also proposes to come up with a revised policy on subsidy in the case of Single Super Phosphate (SSP).

The production of this fertilizer has seen a decline from 3.8 million tonnes (mt) in 1998-99 to 2.75 mt in 2005-06 because the government offers a fixed subsidy of Rs1,125 per tonne on this, and does not factor in the increasing cost of production. The revised scheme is long overdue and should be put in place at the earliest, said Gupta.