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Business News/ News / India/  Pricier gas may increase fertiliser subsidy bill: Report
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Pricier gas may increase fertiliser subsidy bill: Report

Any delay in increased allocation and disbursement would lead to higher working capital requirement and moderate the credit metrics of fertiliser makers, the Crisil report said

The retail selling price of urea is kept as low as 85% below the market prices to encourage farmers to use fertilisers for better crop yield, the report said. (Pradeep Gaur/ Mint)Premium
The retail selling price of urea is kept as low as 85% below the market prices to encourage farmers to use fertilisers for better crop yield, the report said. (Pradeep Gaur/ Mint)

New Delhi: The government’s fertiliser subsidy bill could go up further because of continued surge in the prices of pooled natural gas, the key raw material for manufacturing urea, Crisil Ratings Ltd said in a report.

The report said the increase could be as much as 40,000 crore over the original budget allocation of 1.05 trillion and 1.1 trillion subsidy announced later.

Any delay in increased allocation and disbursement would lead to higher working capital requirement and moderate the credit metrics of fertiliser makers, the report said. Fertilizer subsidy is a major component of the government’s overall subsidy bill which also includes food subsidy. The report said that the government has been proactive in addressing the subsidy requirements of the industry.

“In addition to 1.05 trillion approved in the Union Budget for this fiscal, an additional subsidy of 1.10 trillion was announced in May 2022 to offset surging feedstock and product prices. While this seemed sufficient to meet this fiscal’s requirements, continued surge in the price of gas has necessitated further subsidy," the report said.

The retail selling price of urea is kept as low as 85% below the market prices to encourage farmers to use fertilisers for better crop yield, the report said.

“Amid the Russia-Ukraine conflict, the price of pooled gas has risen 10% quarter-on-quarter in September 2022. The earlier expectation was prices would soften gradually. Each dollar’s increase in the price of pooled gas raises the government’s subsidy burden by 7,000 crore on domestically produced urea, which accounts for 85% of the production volume," the report said quoting Naveen Vaidyanathan, Director, CRISIL Ratings.

The price of imported urea, which accounts for the balance 15% volume, remains elevated at over $650 per tonne, almost double the historical levels, the report said.

Together, this could mean overall subsidies rising to 2.55 lakh crore this fiscal, according to Vaidyanathan.

Over the past two fiscals, timely disbursement of subsidy has significantly improved the credit profile of fertiliser makers. Any build-up of such dues would moderate their credit metrics, the report said.

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Published: 27 Oct 2022, 02:23 PM IST
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