Subsidy dues balloon amid record fertiliser sales during Covid lockdown

While total requirement in the current fiscal is pegged at around Rs 128,000 crore, the 2020-21 Budget provided Rs 71,309 crore towards fertiliser subsidy

As the country went into a lockdown from late March to control the spread of Covid-19, virtually bringing all economic activities to a grinding halt, one sector was seeing a resurgence in demand.

Fertiliser sales during the three months of total and partial lockdown saw a massive surge when compared with last year.

While a big reason for the booming sales is that agriculture was among the first sectors to be exempted from lockdown rules early in April, resulting in a surge in pre-kharif and kharif sowing, some amount of stock building also contributed to the jump in sales.

But this jump hasn’t exactly translated into a win-win scenario for fertiliser firms, as their financial situation hasn’t improved much.

Sales 

Data sourced from the department of agriculture shows that between April and June, around 6.48 million tonnes of urea were sold, 67 per cent more than the same period last year.

Urea is the biggest fertiliser consumed in the country.

DAP sales were reported to be some 2.24 million tonnes, or twice the figure in the same period last year.

The sale of complex fertilisers stood at 2.43 million tonnes between April and June 2020, up 120 per cent over the same period last year.

Financial Status

Urea is the top fertiliser sold in India, and almost 75 per cent of its cost of sales comes from subsidy receivable from the government.

The year 2020-21, according to top industry sources, started with unpaid subsidy dues of almost Rs 48,000 crore.

In the current year, government subsidy is estimated to be about Rs 80,000 crore. Thus, total subsidy requirement in the current fiscal is estimated to be around Rs 128,000 crore (Rs 48,000 crore plus Rs 80,000 crore).

The 2020-21 Budget provided Rs 71,309 crore towards fertiliser subsidy, a major chunk of which goes to urea.

The subsidy budget allocated for 2020-21 was already about Rs 8,689 crore (around 11%), lower than the allocation for 2019-20 at Rs 79,998 crore.

As if this was not enough, in 2020-21, the department of fertilisers has been clubbed under the ‘B’category of ministries as per the new expenditure management regime being implemented in the aftermath of Covid-19.

The ‘B’ category ministries are those that will entitled to spend just 80 per cent of their allocated budget for 2020-21. This means of the already truncated Budget of Rs 71,309 crore, about Rs 57,047 crore will be released in 2020-21.

Of this low release, around Rs 10,000 crore has already been spend on repaying bank loans.

Thus, around Rs 47,047 crore will be left for this year’s subsidy, which is not even enough to clear last year’s outstanding subsidy dues.

Sources said assuming that out of this Rs 30,000 crore is carried forward to the next financial year, as has been the norm, Rs 50,000 crore will be the estimated subsidy receivables for 2020-21.

Now, given the acute financial stress the country is facing due to the massive slowdown in economic activity, it will be extremely difficult for the government to arrange such a huge amount of funds from its budgetary resources.

Under such circumstances, a section of the fertiliser industry is demanding the subsidy be arranged through Special Banking Arrangement (SBA) and suggests that RBI could be directed to remove the existing limit of 60 days for such financing due to extraordinary circumstances.

“Or else, the industry could face massive liquidity crunch due to Budget constraints,” a senior industry official said.

He said the industry is also concerned over reports that government has not included fertiliser dues in the supplementary demand for grants that it plans to place for Parliamentary approval soon.

“This is beyond anybody’s comprehension,” the official said.

Due to the delay in release of urea subsidy over the years, working capital for urea has risen over the years from Rs 100 per metric tonne in 2002-03 to Rs 800 per metric tonne in 2019-20.

“Urea being under statutory price control, the industry cannot charge a rupee more than the price fixed by the Government of India. Hence, any under-recoveries of cost have to be borne by it. This causes serious financial injury to the industry,” the official further explained.

India annually consumes around 30-31 million tonnes of urea, of which domestic production is 26-27 million tonnes while the rest is imported.

Sources said in the clearance of subsidy arrears, the domestic industry is not given preference over those who import fertilisers. This leads to further imbalance in the system.  

THE SUBSIDY MATH

Subsidy Unpaid (as on Mar 31, 2020): Rs 48,000 cr

Subsidy Bill for 2020-21 (estimated): Rs 80,000 cr

Total Budget Required in 2020-21: Rs 128,000 cr

Budget Provision for 2020-21: Rs 71,309 crore

Subsidy now exp due to rationalisation: Rs 57,047 cr

(80% of allocated Budget will be released)

Money to be spent on prev loan repayment: Rs 10,000 cr

Actual Subsidy Available for 2020-21: Rs 47,047 cr

Source: Trade and Industry sources

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