As the government struggles to meet the fiscal deficit target of 5.3 per cent of the GDP, the demand for fertiliser subsidy in the current financial year (FY13) might swell by 62 per cent over the Budget estimate of Rs 60,974 crore.
Meanwhile, the fertiliser industry complained that there has been a delay in payment of subsidies to companies, which is creating pressure on the domestic fertiliser industry.
The Fertiliser Association of India said, "The on account' payment for subsidy on imported phospatic (P) and pottasic (K) fertilisers has been made only up to June 2012, and for domestic P&K fertilisers, it has been paid till July 2012. The subsidy for domestic urea has been paid up to August 2012."
The association also claimed that the Budget allocation of Rs 60,974 crore for fertiliser subsidy has already been exhausted and about Rs 19,000 crore subsidy payment is outstanding for the period till October 2012, and an equal amount would be required for the rest of the financial year.
Senior officials in the fertiliser department confirmed the delay in payment of subsidy and the that the subsidy has already surpassed Budget estimates. "There is delay in payments, but the industry will surely get it soon. Rest of the decision lies with the Ministry of Finance," said an official.
The finance ministry is struggling hard to rein in fiscal deficit. The Budget had pegged it at 5.1 per cent of GDP. Realising that this projection is difficult to meet, Finance Minister P Chidambaram later revised the target to 5.3 per cent of GDP.
The Centre's fiscal deficit in the first eight months of FY13 stood at Rs 4.13 lakh crore, constituting 80.4 per cent of the budgeted target for the full financial year.
Assuming nominal GDP grows by 14 per cent in FY13, as projected in the Budget, the fiscal deficit would turn out to be 77 per cent of the target, revised by the finance minister.
However, it should be noted that the size of GDP might not grow at a rate as high as projected in the Budget, since real GDP growth could come down to 5.7-5.9 per cent and inflation could also not average eight per cent in the current financial year. The lower the GDP, the higher would be fiscal deficit as a percentage of the GDP.
The government pays the difference between the cost of production or import of fertilisers and the farmgate prices, which is known as subsidy.
At present, about 60 per cent of the total cost of production and import is met through subsidy, according industry sources.
"It is becoming increasingly difficult for the fertiliser companies to make payment for the feedstock for want of working capital. Some of the units are on the verge of closure because of their inability to pay for the raw materials required for continuing production," said the association.
Unless immediate measures are taken to correct the situation, a significant portion of existing domestic production may become unviable, necessitating further imports at exorbitant international prices.
While the average subsidy on domestic urea is close to Rs 8,000 per tonne, the average subsidy on imported urea is close to Rs 16,000 per tonne.
"There is urgent need for arrangement for additional funds of about Rs 38,000 crore to save the fertiliser industry from the current financial crisis and enable it to continue operations and supply fertilisers to the farmers. Large outstanding bills increase the working capital requirements of the industry and cost there of," the association said