Over the past few years, India has managed to reduce its obvious fuel subsidies To extremely low levels, but these improvements have been counted by an increase in fertilizer and food subsidies. If statutorily-guaranteed rationing of food grains at heavily subsidized rates puts the majority of the population at food subsidy high, rising global commodity costs are driving up fertilizer subsidy spending.
With retail prices of di-ammonium phosphate (DAP) and muriate of potash (MoP) having risen sharply since November 2021, the government may soon announce another large hike in the subsidy to help farmers save money ahead of the kharif planting season. In FY22, the government increased the phosphatic fertilizer nutrient-based subsidy (NBS) rates by a staggering 197 percent. Another significant increase in subsidy would be the ‘decontrol’ of two soil nutrients that began more than a decade ago.
While farmers in the country remain protected from relentless rise in global urea and natural gas prices because retail prices of nitrogenous fertilizer are capped and subsidy is open-ended, the rise in DAP and MoP prices in the global markets inflates farmers. ‘Costs because the subsidy on the two products, while high, is capped.
With the implementation of a ‘fixed-subsidy’ regime as part of the NBS mechanism in 2010, retail prices of phosphatic and potassium (P&K) Fertilizers, including DAP, were ‘decontrolled.’ The DAP subsidy increased by 60% of the cost in FY22, up slightly from 30% earlier. However, even after the subsidy increase, prices in worldwide markets have continued to grow. As a result, the retail price of MoP has climbed from 18,000 / tonne in November to the current amount of 32,000 / tonne. Similarly, the DAP now costs Indian farmers Rs 27,000 per tonne, up from Rs 24,000 per tonne in November last year.
DAP of domestic manufacturers may be forced to raise retail prices if the subsidy is not increased, according to industry sources. Given the unpredictable geopolitical environment, the government would have no choice but to increase the subsidies, which are now Rs 33,000 per tonne for DAP and Rs 6,100 per tonne for MoP.
In 2022-23, the annual budget spends on fertilizer subsidy Would have been well over the Rs 1-trillion threshold for the third year in a row, compared to a lower range of roughly Rs 70,000-80,000 crore for the past few years. The government paid arrears of about Rs 65,000 crore as part of the Covid-related packages, bringing the subsidy cost up 57 percent year on year to Rs 1.27 trillion in FY21. The rise in worldwide fertilizer costs, as well as critical components, pushed the fertilizer subsidy up to Rs 1.4 trillion in FY22. The subsidy may be in the region of Rs 1.7-2 trillion in FY23, an all-time high, due to rising worldwide costs of essential fertilizers and inputs.
Imports account for roughly half of India’s DAP requirement (mainly from West Asia and Jordan), while imports account for all of India’s MoP demand (from Belarus, Canada and Jordan, etc.). The current landing cost of the MoP is approximately double what it was a year ago; The cost of DAP imports has risen even more dramatically (see chart).
“To cope with the problem, the government and fertilizer makers have essentially gone back to square one.” “The goal is to make an increase in farmer prices,” industry insiders told.
Farmers pay a set price of Rs 242 per bag (45kg) for urea, which covers around 20% of the cost of production; The government provides rest as a subsidy to fertilizer companies. Due to rising worldwide costs of fertilizers and natural gas (LNG), the feedstock for the urea sector, the Center’s fertilizer subsidy expenditure is estimated to be over 1.6 trillion in 2022-23, up from around 1.5 trillion in 2021-22. While there are some concerns about fertiliser shortages In specific areas of the nation, an agricultural ministry source told FE that the inventory is currently efficient. ‘ “In collaboration with other departments, we are continually reviewing the (supply) situation,” he added.
DAP is imported in limited quantities from Russia by India. Because Russia’s supply of DAP to Europe and South America is unlikely to be affected by Western sanctions, Moscow is unlikely to sell DAP at a discount to India. DAP is commonly used in rabi crops including wheat, pulses, and oilseeds, coupled with urea.
According to a representative from a fertilizer company, the government needs long-term contracts with nations import fertilisers in the current uncertain environment. “We are in talks with a number of nations to ensure that appropriate imports are available before the planting season begins,” a ministry official said.
Indian Potash (IPL), a state-owned company, inked an annual supply of 0.6-30 million tonnes of MoP from Israel to MoP from 2022 to 2027. India and Jordan have been considering the provision of phosphatic and potassic fertilizers. General Chat Chat Lounge Subsidies on various fertilizer grades are distributed to fertilizer businesses under the fertilizer DBT system based on actual sales to farmers / buyers using Point of Sale (PoS) devices installed at each retail outlet. In 2021-22, more than 6.6 crore farmers with Aadhaar identification used PoS devices to buy fertilizer.
The Department of Fertilizers recently accepted a response to a question addressed in Parliament that “there is no scarcity of fertilizer in the country.”
“However, in the interim, certain states, notably in a few districts, emphasized the DAP deficiency.” DAP rakes were shifted to satisfy the criteria as a result of the state government’s demands, “the agency stated.
According to industry sources, India has an opening stock of roughly 9 million tonnes of urea for the current fiscal year (as of April 1), with another 8 million tonnes expected to be imported. “There is not much to be concerned about in urea supply,” a spokesman from the sector stated. DAP’s opening stock is about 0.9 million tonnes, and it is widely used for rabi crops. The expected demand for both seasons is over 4 million tonnes, which will be met by local production and imports.