Budgeted allocation for fertilisers in FY24 squeezed on fight fiscal consolidation roadmap

Fertiliser

A tight fiscal consolidation roadmap may have forced Finance Minister Nirmala Sitharaman to allocate Rs 1.75 lakh crore for fertiliser subsidy in 2023-24, against an estimated actual expenditure of over Rs 2 lakh crore in the current fiscal.

The trimmed allocation under the fertiliser subsidy head is a surprise, since the FM has had to increase the budgeted allocation year after year previously, as the actual outgo has been climbing due to various reasons, including geopolitical factors and global prices.

During FY2021, while the Budgeted Estimate (BE) was Rs 70,000 crore, the actual expenditure was nearly double that, at Rs 1.38 lakh crore. The same story was repeated in FY2022, when the actual expenditure on fertiliser subsidy came in at over Rs 1.6 lakh crore, against the budgeted amount of Rs 80,000 crore. For the current fiscal, the BE was Rs 1.05 lakh crore, but the actual expenditure may actually have been double the number, again.

To put it simply, fertiliser subsidy is the difference between the cost of production or import of fertilisers and the price at which it is sold to farmers. The subsidy is given to fertiliser companies, since the subsidised price to farmers is fixed.

India depends largely on imports for meeting its fertiliser needs and a major source of imports remains the war-torn Ukraine. Other import destinations are Russia, China and Saudi Arabia. The long drawn Russia-Ukraine war has led to a sharp increase in the price of imported fertilisers, thus bumping up the fertiliser subsidy bill considerably.

What remains to be seen is the ways and means the government adopts in FY24 to bridge the gap between the low allocation and the actual outgo. India has already pushed local manufacturing of fertilisers and diversified import markets beyond Russia and Ukraine. But will the government bite the bullet and actually increase fertiliser maximum retail price (MRP) for farmers in a pre-election year? This remains to be seen.