Lower subsidy to weaken fertiliser cos' liquidity

The liquidity profile of the fertiliser industry will continue to be weak with spikes in the short-term borrowings in the second half of the year, with higher interest costs on the same due to under-budgeting of the subsidy, ratings agency Icra said here.
Finance minister Arun Jaitley today hiked the fertiliser subsidy to Rs 70,079.85 crore for fiscal 2018-19 as against the revised estimate of Rs 64,973.5 crore in the current financial year. For urea, the Centre has allocated Rs 44,989.5 crore in the next fiscal as against Rs 42,721.7 crore this fiscal.
The budget allocation for phosphatic and potassic (P&K) fertilisers under the nutrient-based subsidy scheme has been increased to Rs 25,090.35 crore next fiscal from Rs 22,251.8 crore in the current financial year.

The subsidy provided for the fertiliser sector is Rs 70,080 crore for 2018-19, marginally higher than the level of Rs 64,974 cr in 2017-18.
However, there could be a shortfall of around Rs 35,000 crore, which is largely the carried forward amount from 2017-18. The industry players have repeatedly been complaining on the under-provision of subsidy and significant delays in the payment of subsidy especially in the second-half of fiscal years, Icra said.
"The issue assumes more importance for 2018-19 as the government is preparing to roll out direct benefits transfer (DBT) scheme for the sector on a pan-India basis, where without adequate budgetary provision, working capital cycle for the industry could elongate," Icra said.

"In view of the under budgeting of subsidy, liquidity profile of the industry will continue to be weak with spikes in short-term borrowings in the second half of the year, and higher interest costs on the same," Icra said.

However, several measures initiated by the government to revive the agricultural economy such as increase in minimum support price (MSP) for kharif crop at 1.5 times the producer price, investment of Rs 2,000 crore on agri market infrastructure fund, Rs 500 crore for operations green, focus on micro irrigation, cluster approach to develop agri markets and increased allocation for agricultural credit at Rs 11 lakh crore will help fertilizers companies in the medium-term through higher demand, Icra said.

Fertiliser co-operative IFFCO's managing director U S Awasthi agreed that policies to help agriculture will help farmers morale with more incomes at their hands and help in the growth of agrarian economy.
The 100 per cent tax deduction for the first five years to companies registered as farmer producer companies with a turnover of Rs 100 crore and above would help attract more companies to enter into farm producing, Awasthi added.