Russia-Ukraine war: Govt stares at higher fertiliser subsidy bill

Ukraine war may push FY22 burden by Rs 15k cr, hit FY23 estimate

The Centre’s fertiliser subsidy burden for the current financial year (FY22) is set to rise even further as commodity prices remain high due to the ongoing Russia-Ukraine war. The fertiliser subsidy bill for FY22 had been already revised to Rs 1.4 trillion from a budgeted Rs 79,530 crore.

“Our fertiliser burden for the year will rise. We see it rising by Rs 10,000-15,000 crore or even more,” a top official said.

Provided all other FY22 Revised Estimate (RE) assumptions remain the same, an additional fertiliser subsidy outlay of Rs 15,000 crore would not impact the fiscal deficit as the RE would still be around 6.9 per cent of GDP. The bigger issue regarding the FY22 fiscal deficit target is whether the Centre can carry out the initial public offering of LIC before March 31.

As reported earlier, the Budget Estimate (BE) for fertiliser subsidy in the coming fiscal year (FY23), which begins April 1, at Rs 1.05 trillion is also under threat due to elevated commodity prices. But policymakers are unwilling to put a new number to it yet.

“Technically, since the Finance Bill and Appropriation Bill has not yet been passed in the Lok Sabha, the Budget numbers can still be changed. However, just one number cannot be tweaked; all other items up and down the line, including the total expenditure number, will have to be changed,” the official quoted above said.

“The situation is rather uncertain and fluid. Europe has still not banned Russian hydrocarbons. We do not know where commodity prices will go two months, six months, or eight months from now,” the person said.

The FY23 BE for fertilizer subsidy is looking insufficient owing to the continuing surge in urea rates and the expectation that other key raw materials like phosphate and ammonia may further come under pressure due to rising crude oil and gas prices. Earlier, officials had told Business Standard that the requirement may cross Rs 1.50 trillion.

Officials expect some moderation in the rates for urea, prices of which in global markets have softened since November 2021 by almost 40 per cent; DAP (di-ammonium phosphate) is selling around $900 per tonne in global markets. Russia is the second-largest producer of potash, which is used in the production of DAP. 

Trade sources said the Indian pooled gas rates may go up to $18/mmbtu from the current $16. Rough estimates show for every $1 increase in pooled gas rates, the subsidy requirement for urea increases by Rs 4,000-5,000 crore.

That apart, there were talks that India was looking to meet fertiliser manufacturers from Russia for a three-year-long term contract for DAP and NPK (complex fertilisers). Those negotiations could be put on hold as long as the crisis continues.

Ukraine also supplies around 10 per cent of India’s urea requirements. That has now been affected. But the government is confident that apart from fertiliser subsidy, the ongoing crisis in eastern Europe will not directly impact other assumptions for the year as much. Officials do not yet want to talk about the possibility of petroleum subsidies rising.