A urea price hike seems inevitable, as the Budget has effectively provided Rs 27,046 crore toward fertiliser subsidy, which is far from adequate. But, whether the Government will bite the urea bullet in an election year is worth a watch.
Though the actual budgetary provision is Rs 65,972 crore for 2013-14, the effective subsidy that would be available to fertiliser companies stands at around Rs 27,046 crore. This is because the Government, at present, owes about Rs 39,000 crore to fertiliser makers, as the subsidy for 2012-13 has overshot the budget estimate to such extent.
The overrun in subsidy burden was due to a sharp increase in global prices of potash and phosphatic fertilisers last year and impact of a weakened rupee, as the country heavily relies on imports for such nutrients. The delay in subsidy payment has resulted in cash flow problems for many a fertiliser makers.
The industry believes that an effective lower subsidy for 2013-14 could get exhausted quickly, sometime in June-July, as was seen last year as companies are saddled with huge stocks that would be offloaded during the forthcoming kharif season.
Urea prices
Recently, the Fertiliser Ministry arranged for a Rs 5,000-crore bank loan to fertiliser companies and expects to share a major part of the interest burden. There are expectations that the Government may announce a cut in non-urea fertiliser subsidy as global prices have softened. Such a move, if implemented, may keep the non-urea prices firm in the season ahead.
At present, urea is heavily subsidised by the Government and is currently priced at Rs 5,365 a tonne. The price of complex nutrients, such as di-ammonium phosphate (DAP) and NPK are quoted at Rs 24,000 and Rs 22,000 a tonne, respectively.
The industry has been demanding an increase in urea prices for quite some time now, as this will not only help contain the subsidy burden but would also prevent the impact on soil health. The huge price differential in the price of urea and non-urea complexes has led to the indiscriminate use of the nutrient for the second year, resulting in imbalanced fertigation (the application of fertilisers or other water soluble products to the irrigation system).
However, the Government has been dithering on increasing the prices, as urea is a politically sensitive issue, even as there is pressure on it to reduce subsidies to contain the fiscal deficit.