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In a double whammy for the fertiliser sector, the Finance Ministry is unlikely to provide additional subsidy in the current financial year.
At the same time, the fertiliser companies have been asked to bear part of interest burden on account of the special banking arrangement for payment of subsidy in the current year itself.
“The revised estimate for fertiliser subsidy in 2012-13 may remain a Budget estimate,” a senior Government official told Business Line .
The Government announces the first estimate of expenditure for next financial year in the Budget, which is termed the ‘Budget estimate.’ Now, after a change or even in case of no change, the Finance Minister gives the revised estimate in the next year’s Budget.
Fiscal pressures
The Finance Ministry has repeatedly expressed its intention to keep the fiscal deficit within 5.3 per cent. Since additional allocation has been made under the petroleum subsidy, there is no possibility of giving more to the fertiliser sector.
That is the reason why the revised estimate on account of fertiliser subsidy may not see any change, the official added.
Special arrangement
The fertiliser industry has sought an additional subsidy of Rs 40,000 crore. Since the additional allocation was not made in the first supplementary demands for grant, the Fertiliser Ministry planned a special banking arrangement of Rs 25,000 crore.
However, the Finance Ministry gave its nod for Rs 5,000 crore to be raised as loan.
Accordingly, a consortium of banks, led by the State Bank of India, agreed to provide a loan of Rs 5,000 crore to be paid to fertiliser companies in lieu of subsidy due.
Another Government official said, “The consortium has intimated that under the present market conditions, they have tied up the full syndicated amount of Rs 5,000 crore of short-term credit under the special banking arrangement at an interest of 10.25 per cent per annum.”
Letter to manufacturers
Accordingly, a letter has been sent to all fertiliser manufacturers and importers.
The letter said, “The interest liability of the Government in respect of the loan to be allowed in lieu of the subsidy due to the fertiliser companies/importers will be limited to eight per cent (maximum G-Sec rate) per annum and interest beyond eight per cent and up to 10.25 per cent per annum will be borne by the fertiliser companies.”
“This provides for partial relief. However, it is badly delayed,” said Satish Chandra, Director General of the Fertiliser Association of India.
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