Centre hikes non-urea fertiliser subsidy to ~61,000 cr for H1FY23

With prices hitting the roof due to the ongoing Russia-ukraine crisis, the Centre on Wednesday approved a subsidy of ~60,939.23 crore for nonurea fertilisers for the first six months of this financial year. This will enable companies to continue selling the vital soil nutrients at affordable rates to farmers.

This is almost 45.23 per cent more than the Budget Estimates for non-urea fertilisers for the entire FY23.

After this move, firms will be able to sell one bag of Di-ammonia Phosphate (DAP) at ~1,350 because the Centre will absorb the remaining cost. The subsidy is estimated around ~2,501 as subsidy.

Till last year, the per bag subsidy on DAP was ~1,650, thus marking an almost 50 per cent increase in FY23.

Earlier, this month, fertiliser companies had raised DAP prices by ~150 per bag from ~1,200 to ~1,350. For nitrogen, phosphate, potash and sulphur (NPKS), the prices were risen in the range of ~20-110 per 50 kg bag depending upon the grade.

“After Wednesday’s subsidy support, most companies will manage to hold on to the hikes or else they would have had to further raise prices of DAP and NPKS. This is because input costs have been continuously rising,” a senior industry official said.

DAP is the second-most consumed fertiliser in volume terms in the country after urea.

For other complex fertilisers such as various grades of NPKS, SSP and MOP, the subsidy rates have been determined in accordance with the nutrient-based subsidy (NBS) formula. The subsidy for urea for 2022-23 is still awaited.

The subsidy approved for both DAP and NPKS (various grades) fertilisers is almost 45.23 per cent more than the subsidy allocated to nonurea fertilisers. This is according to the Budget Estimates of FY23.

So, for non-urea fertilisers, the central government had allocated a subsidy of ~42,000 crore in the Budget for the entire FY23.

On Wednesday, it allocated ~19,000 crore extra that too just for the first six months of this financial year.

Under the NBS, which has been implemented since April 2010, a fixed rate of subsidy (in Rs per kg basis) is announced for nutrients — namely N, P, K and S by the government on an annual basis.

In the case of urea, the Centre fixes the maximum retail prices and reimburses the difference between the maximum retail price and production

cost in the form of subsidy.

Meanwhile, ever since the Russia-ukraine war, urea production cost has jumped due to high gas rates. The price of non-urea fertilisers has also gone up due to shortage of key raw materials and finished products.

According to rating agency ICRA, for every $1/MMBTU rise in pooled gas price, the subsidy requirement for the urea segment could rise by around ~4,500-5,000 crore.