FY24 fertiliser subsidy may be contained at Rs 1.88 lakh crore

This year the total fertiliser subsidy allocation for P&K fertilisers is Rs 60,000 crore and urea imports at approximately Rs 30,000 crore.

Due to the fall in international prices and India’s strengthened capacity in nano urea, an additional allocation may not be required. The Finance Ministry has recalculated the fertiliser subsidy due to the fall in international prices. Within fertiliser subsidy schemes, some re-appropriation has also been done, he said.

The approved nutrient-based fertiliser subsidy rates for the 2023-24 Rabi season are sharply lower than what they were for the kharif season. The approved subsidy rates for October 2023-March 2024 are Rs 47.02 per kg for nitrogen, Rs 20.82 per kg for phosphorus, and Rs 2.38 per kg for potash.

"In 2023-24, the budget allocation of Rs 1,75,103.37 crore for fertiliser subsidy and it appears it is going to exceed. But, as the global uncertainties are reducing, volatility in prices will  reduce," National Institute of Public Finance and Policy (NIPFP) economist A Sri Hari Nayudu told Moneycontrol.

Last October, the government said in a statement that the “rationalisation of subsidy on P&K fertilisers” was being done “in view of recent trends in international prices of fertilisers and inputs”. The Nutrient Based Subsidy Scheme (NBS) governs the subsidy on P&K fertilisers.

Rabi crops are sown in mid-November and harvested in spring. Wheat, barley, oats, gram, mustard and linseed are some major rabi crops. Kharif crops include rice, maize, millet, ragi, pulses, soybean and groundnut, which are sown early in May.

In 2022-23, the country’s fertilizer subsidy reached a record 2.25-lakh crore due to global supply shocks and political factors.

Why Prices are falling?

Prices of urea have fallen from the height of $600/tonne in 2022 to about $360/tonne in October 2023 and other fertilisers also show similar trends.
"On the demand side, the reduction in usage due to high prices and shift to organic agri practices will reduce demand and play a key role in the coming years. Better targeting, eliminating leakages and increasing domestic production can help further reduce fertiliser subsidy burden in India. From 2021-22 onwards, the government has given an aggressive push to step up domestic production," Nayudu said.

The main fertiliser production firms in India include FCI Aravali Gypsum  and Minerals India Limited, Rashtriya Chemicals and Fertilisers Limited, Brahmaputra Valley Fertiliser Corporation Limited and National Fertiliser Limited.

According to the International Fertilizer Association (IFA), fertiliser regulations in the major countries, as part of EU Nitrate Directive  and the EU Green Deal, are expected to reduce the global demand by at least 20 percent by 2030. In addition, the shift to organic farming in the EU will also have a huge impact. According to IFA, the organic agricultural area in the EU is at 10 percent in 2021 and is expected to reach 15 percent by 2030.

On the supply side, The Russia- Ukraine war disrupted the supply chains in 2020-21. But, the new supply chains and agreements helped to revive production and were expected to continue in 2024. Also, some of the major importing countries, like India, Brazil and USA, are stepping up domestic production aggressively, he said.