Even as the government tries hard to rationalise its subsidy payout — and even mulls direct cash transfers to targeted beneficiaries — the subsidy bill on fertilisers is likely to rise by 60 per cent for the current financial year in the revised estimates, compared with Budget estimates. This is despite the decontrol of complex fertiliser prices under the nutrient-based subsidy (NBS) regime from the beginning of this fiscal.
“The subsidy bill is expected to rise sharply for FY11 over last fiscal due to a rise in demand and higher prices. We expect it to stand somewhere between Rs 80,000 crore and Rs 83,000 crore, from the Budget estimate of Rs 49,981 crore,” a senior official from the department of fertilisers told Business Standard.
The higher demand for fertilisers this fiscal is attributed to a better monsoon than last year. The revised estimate amounts to around 8 per cent of the fiscal deficit pegged for the current fiscal. The total subsidy payout on fertilisers in 2009-10 stood at Rs 52,980 crore, which was lower than the Rs 76,603 crore in 2008-09.
In the last Budget, the government’s fertiliser subsidy payout for 2010-2011 was decreased by Rs 2,999 crore over the previous fiscal, based on an anticipated reduction in the subsidy requirement for decontrolled fertilisers under the NBS policy implemented for all fertilisers, except urea, from April 1, 2010.(Click for graph)
The Budget estimates for 2011-2012 will not be increased as sharply. Indeed, it could be lowered by Rs 3,000 crore, owing to the likely inclusion of urea under the NBS regime from April 1, according to the official.
In Budget 2010-2011, the finance ministry had earmarked Rs 15,981 crore as subsidy for indigenously produced urea, another Rs 5,500 crore for imported urea fertilisers and the remaining Rs 28,500 for the sale of decontrolled fertiliser at a concession to farmers.
“We expect the subsidy for FY11 to be revised in the Budget, as revised estimates are likely to account for a higher subsidy payout on account of higher consumption, along with higher prices this year. The upward subsidy revision in the Budget will be positive for sentiment, while implementation of NBS in urea may act as a key positive trigger for the sector,” said Tarun Surana, research analyst with Mumbai-based Sunidhi Securities & Finance.
India mainly imports three varieties of fertilisers: Urea, Di-ammonium phosphate and muriate of potash. While the demand for urea is 26 million tonne, only 20 million is produced domestically and the remaining is imported.
According to one estimate, the country’s fertiliser subsidy has shot up by 530 per cent in the last five years.
Going by this trend, the government estimates its subsidy bill to soar to Rs 1.73 lakh crore in 2011. On the other hand, even though the government had provided for only Rs 3,108 crore as petroleum subsidy, it has so far committed Rs 17,108 crore for the current fiscal.
The Centre’s subsidy bill may bloat further, as oil subsidy is also expected to go up, as crude prices flare. The additional Rs 14,000 crore approved by Parliament in the second supplementary would show in the government’s current year’s account, but the three oil marketing companies had shown it as receivables on their books last year. For the current year, they have only a commitment by way of a government letter for one-third of their under-recoveries. Of this, Rs 8,000 crore has already been taken on oil company books.
Yesterday, the government constituted an inter-ministerial task force under UIDAI Chairman Nandan Nilekani to evolve a mechanism for direct subsidy transfer for kerosene, cooking gas and fertilisers to reduce diversion of subsidies.
Economists believe that the government’s subsidy burden is far from being lightened. “Expenditure this year has definitely overshot the target. However, tax revenues and non-tax revenues have been robust, which is why we have seen growth in nominal GDP,” said Shubhada Rao, chief economist, Yes Bank.
“This year we expect the fiscal deficit-to-GDP ratio to be around 4.9 per cent. However, in FY12, there is going to be pressure on the fiscal deficit side, which might reach 5.3 per cent of GDP, as there will no windfall gains from non-tax revenues. We also do not see any correction on the expenditure side,” Rao added.