How the rise in global fertiliser prices will hit India’s subsidy bill

Prices of fertilisers such as urea, di-ammonium phosphate (DAP) and ammonia shot up over the past month after falling towards the end of June (Photo: Mint)
Prices of fertilisers such as urea, di-ammonium phosphate (DAP) and ammonia shot up over the past month after falling towards the end of June (Photo: Mint)

Summary

  • It creates two problems for the Indian government – one political and one fiscal

With global fertiliser prices on the rise again, the government has an emerging worry ahead of assembly elections in five crucial states (Madhya Pradesh, Rajasthan, Chhattisgarh, Telangana and Mizoram) later this year and the general elections next year. Prices of fertilisers such as urea, di-ammonium phosphate (DAP) and ammonia shot up over the past month after falling towards the end of June.

The trend of international prices cooling off from the highs sparked by Russia’s invasion of Ukraine in February 2022 has reversed. As India relies heavily on imports to boost crop productivity, Mint explains how the rising prices of fertilisers will hit India’s subsidy burden and import bills.

What are the current prices of fertilisers?

Landed prices of imported urea in India have gone up to $395-410 a tonne from $318-320 last month, after falling as low as $285-290 towards the end of June. Landed prices of DAP rose to $560 a tonne from $435-440 in mid-July. In the case of ammonia, an imported intermediate used for domestic DAP production, prices climbed to $400-405 a tonne from $300-310 about 90 days ago.

At their peak, import prices of DAP touched $950-960 a tonne in July 2022. Even before the war, Urea prices were at $900-1,000 a tonne in November 2021-January 2022, while the price of ammonia was at $1,575 in April 2022 and phosphoric acid at $1,715 in July-September last year.

If the current uptrend continues, even the $850-a-tonne import price fixed with global suppliers for the July-September quarter may have to be reset in October-December.

On the other hand, prices of muriate of potash are still reasonably low at $319 a tonne as Russia is reportedly keeping the global potash market well supplied for now. Prices dropped to $422 a tonne in April-June from $590 in March.

How will the jump in global fertiliser prices affect India?

The rise in fertiliser prices creates two problems for the Indian government. The first is fiscal. The Union Budget for 2023-24 allocated 1.75 trillion towards the fertiliser subsidy; of which only 45,113 crore was used in the April-June quarter as global prices dipped, promising further savings in the coming months.

These calculations may now have to be revised. Ahead of the 2024 general elections, the government will have no option but to spend more on fertiliser subsidies at a time when food inflation is high. India’s fertiliser subsidy bill touched 2.51 trillion in 2022-23.

The second issue is related to politics. The Modi government has targeted DAP imports of six million tonnes over the next four months to ensure sufficient supply during November-December, when rabi crops such as wheat, gram, mustard, barley, masoor (lentils), potato, garlic and jeera will be sowed in states where assembly elections are scheduled.

Experts say the government is unlikely to compromise on imports of fertilisers or be okay with visuals of farmers standing in long queues for hours to get the odd bag of urea or DAP at that point. It will go all out to import and budget for a higher subsidy if required.

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