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India will provide an additional 28,655 crore ($3.8 billion) to fertilizer companies as compensation for selling products at lower than market prices to farmers, a government statement said.

A cabinet meeting chaired by Prime Minister Narendra Modi approved the enhanced subsidy for winter-sown crops late Tuesday. The subsidy on of Di-ammonium Phosphate is being raised by 438 per bag and 100 per bag for nitrogen, phosphorus and potassium fertilizers.   

“The subsidy on P&K fertilizers will be provided based on the nutrient-based subsidy rates approved by the Cabinet Committee on Economic Affairs to ensure smooth availability of these fertilizers to the farmers at affordable prices," according to the statement.

The ruling Bhartiya Janata Party is keen to win over farmers after facing massive backlash for the past year over new laws that allow private businesses to procure agricultural produce directly. The farmers fear the new rules will replace the government’s guaranteed crop-purchase mechanism. Their support will be crucial for Modi’s party to win key state polls next year.

Earlier, Bloomberg News reported citing people with knowledge of the matter that the cabinet will soon approve the proposal which ensures price for farmers remains unchanged. The the move follows a government directive to companies asking them not to increase the retail price of some fertilizers.

The proposal is also to partly offset the increase in international prices of DAP and nitrogen, phosphorus and potassium fertilizers.  The increased fertilizer subsidy in the current financial year will boost spending to over RS 1 trillion  from 80,000 crore allocated in the federal budget unveiled in February.

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