A fertiliser supply crisis looms large over India as the Department of Fertilisers, which clears subsidy dues to fertiliser manufacturers, has almost exhausted its Budgetary allocation of Rs 30,986 crore for 2008-09.
The department’s request for an additional Rs 66,453 crore as supplementary grant to meet the subsidy demand has not yet been accepted by the finance ministry, according to a department official.
Since the subsidy component accounts for over 80 per cent of the retail price of fertilisers, any delay in reimbursement will hit the industry hard, the official added.
Industry estimates suggest the Budgetary allocation, which was just one-third of the estimated subsidy requirement for 2008-09, was only enough to clear subsidy bills up to July 2008. “The fertiliser companies are facing a severe working capital crunch. Any delay or non-payment of subsidy dues even for a month will disrupt production, import and availability of fertilisers,” said an industry representative.
The government official also agrees that the remaining funds are sufficient only to clear the payment dues up to August-end. “There is enough money to clear the subsidy claims made by industry for fertilisers supplied up to July and not beyond that,” the official said. “However, the industry will not stop the production of fertilisers. At most, it may cut down the production thereby causing inadequacy in supplies for a short period,” he said.
Meanwhile, the fertiliser department has asked the finance ministry to provide the entire supplementary grant in cash to ease the liquidity crunch being faced by the industry. “It is for the finance ministry to decide the quantum of amount to be allocated under the supplementary demand for grants. The industry need not panic. Some funds will come soon,” the official added.
But the Fertiliser Association of India (FAI) is not as confident. “The fertiliser department is making all efforts to avoid any delay. However, the government functions within a system and several clearances are required before the supplementary grant can come to us. Ultimately it (the additional demand for funds) has to be passed during the monsoon session of Parliament, the dates of which are not yet clear,” said Satish Chander, director general, FAI.
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Chander added that a fivefold increase in cost of production, severe liquidity crunch and increasing bank interest rates are all issues plaguing the industry.
Official estimates indicate that the steep increase in raw material costs have increased the fertiliser subsidy burden for 2008-09 by at least 25 per cent in just three months. The government has revised its subsidy estimates from Rs 95,013 crore as estimated in March, to Rs 1,19,772 crore in June. The latest revised estimate is, therefore, three times larger than the actual subsidy burden (Rs 40,338 crore) shouldered by the government in 2007-08.
The revised fertiliser subsidy burden is now estimated at 2.25 per cent of GDP for 2008-09. The government had issued fertiliser bonds worth Rs 7,500 crore in 2007-08.