Fertiliser subsidy arrears are likely to be around Rs 40,000 crore at the end of current fiscal due to lower allocation in the Budget, industry body FAI has said while seeking early disbursal of pending dues of manufacturers.
Fertiliser manufacturers have to incur an additional interest cost of Rs 4,000 crore per annum due to delay in subsidy payment by the government, Fertiliser Association of India has said.
"Subsidy arrears are estimated to fall slightly this year to around Rs 40,000 crore. At the end of last fiscal, the arrear was Rs 43,000 crore," FAI Director General Satish Chander said.
The fall in subsidy arrears is due to decline in urea subsidy because of fall in global prices, he said, adding that the subsidy on phosphatic and potassic fertilisers has also dropped by about Rs 4,000 per tonne.
The government sets the maximum retail price of urea. The difference between the cost of production and the retail price is reimbursed to manufacturers as subsidy.
Chander suggested that the government should clear the subsidy arrears at the earliest.
"The budget allocation for subsidy arrears has already been exhausted," he said while demanding additional funds in the supplementary grants.
The government had allocated around Rs 70,000 crore in this year's budget for payment of fertiliser subsidy.
FAI has also demanded that the government implement its decision to increase the fixed cost of urea by Rs 350 per tonne.
"Fixed cost under urea pricing and subsidy scheme continues to be reimbursed based on cost data of 2002-03. There has been a significant increase since then, resulting in under-recovery to the industry," FAI said.
Stating that the modified policy that is effective April 2014 allowed increase in fixed cost by Rs 350 per tonne of urea, FAI said: "This is a classic example of non-implementation of a notified policy, which was formulated after almost seven years of discussions at various levels."
On GST, FAI said the rate higher than 5-6 per cent would increase the cost of fertilisers and the same would have to be borne by the government and farmers.
"If the subsidy, which constitutes a major part of the cost of supplies, is not kept out of GST, it will increase the incidence of tax substantially resulting in either higher subsidy or retail prices or both," FAI said.
On impact of demonetisation on fertilisers sales, the association said there is no adverse impact.
However, Chander said the sales of urea and DAP are down by 12 per cent each during April-October of this fiscal as retailers had carry-over inventories.
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