With a sharp spike in prices of liquefied natural gas (LNG) which has pushed up the cost of production of urea, the fertilizer subsidy is likely to cross Rs 2.5 trillion in the current fiscal, 138% higher than the budget estimate of Rs 1.05 trillion, according to official sources.
The government reckons that the natural gas prices, which constitute about 85% of cost of production for urea, is likely to be at elevated levels in 2023-24 as well.
The government is working out measures for ensuring that LNG is supplied to fertiliser companies at a lower price. One of the proposals being discussed is asking state-run GAIL (India) to procure the fuel on behalf of Indian companies under short-tern contracts. There has been concern about the way the fertiliser companies deal with the issue of gas price as the entire burden of subsidy is borne by the government.
It would be the fourth year in a row that the annual Budget spending on fertiliser would be above Rs 1 trillion mark this fiscal, against a lower range of Rs 700 – 800 billion in the past few years.
Rating agencies – ICRA & Crisil – too have pegged the government’s fertiliser subsidy to cross Rs 2.5 trillion in the current fiscal