The fertiliser subsidy is likely to come down by around Rs 250 crore due to the new pricing formula introduced by the government for naphtha, furnace oil and low sulphur stocks.
The new pricing policy knocks off the five per cent import duty on naphtha, one of the major constituents of fertiliser.
With both the cost of production and sale price fixed by the Centre, as fertiliser comes under the retention pricing of the government, the lower naphtha prices would mean lower input costs and therefore an automatic reduction in the subsidy, sources said.
Under the new concept, naphtha will be priced on the basis of import parity with zero per cent customs duty, as against five per cent duty earlier. The inclusion of the five per cent duty had faced resistance from fertiliser companies.
The new pricing also includes an element of weighted average sales tax to be paid by fertiliser companies as compared to actuals earlier.
The petroleum ministry had earlier lowered the naphtha prices with effect from July 1, 2001 due to change in the international prices and market conditions.
The move follows a proposal from the chemicals and fertilisers ministry to the oil ministry for making naphtha and fuel oil prices favourable to the fertiliser sector.
However, the new composite prices will differ from customer to customer as against the earlier method where the cost was built up on a fixed refinery prices for all customers.
Prices will undergo change every fortnight as compared to every month earlier. The method for pricing will be reviewed for changes every six months.
Pratap Narayan, director general of the Fertiliser Association of India (FAI) told Business Standard,
