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The Finance Ministry has granted Rs 10,000 crore under a special banking arrangement (SBA) as sought by the Department of Fertilizer to help the industry tide over the liquidity crunch.
"We have provided Rs 10,000 crore as SBA as demanded by the fertiliser ministry," a senior finance ministry official told PTI.
The SBA, under which fertiliser companies can take loans against subsidy receivables, would help the industry meet its fund requirements till the time the cash subsidy is released by the finance ministry.
Earlier this month, Parliament had given its approval for an additional Rs 2,000 crore for providing additional cash subsidy under the head of indigenous fertilisers.
The government had provided Rs 70,586 crore for fertiliser subsidy in 2013-14 against a demand of Rs 105,497 crore by the Department of Fertilizers.
The urea subsidy was exhausted after making payments till July, while the provision for phosphatic and potassic (P&K) fertilisers will finish by December end after making payments till September, another government official said.
A subsidy of Rs 41,158.85 crore was allocated for urea and Rs 29,426.88 crore for P&K fertilisers for this fiscal
The official said the fertiliser ministry will not be left with any money to pay subsidy bills for the third and fourth quarters of the financial year ending in March 2014.
An outstanding amount of Rs 22,000 crore was carried over from 2011-12 to 2012-13. The backlog for 2012-13 was higher at Rs 32,000 crore and has to be paid from this year's allocations.
Amid the liquidity crisis, Fertiliser Minister Srikant Jena had written to Finance Minister P Chidambaram in October seeking immediate additional funds, saying the situation was of "grave concern" and two state-run fertiliser firms faced closure.
Against Rs 12,000 crore sought by the Department of Fertilizers, the Finance Ministry approved Rs 5,500 crore under a special banking arrangement at an interest rate of 10.7% per annum.
The government agreed to bear interest of 8% per annum with 2.7% interest to be borne by the industry.
Finance costs for fertiliser companies are set to rise as delayed subsidy payments force them to borrow money to run operations.
