Fertiliser subsidy allocation for FY25 likely lower than Rs 1.75 lakh cr

The Union Budget is likely to look at an allocation lower than Rs 1.75 lakh crore for fertiliser subsidy in 2024-25 owing to a drop in international prices, government push towards schemes for use of bio and organic fertilisers and increased use of nano urea, a government official said.

In the current fiscal year (2023-24), the fertiliser subsidy is likely to touch Rs 1.88 lakh crore.

“The earlier expectation was that fertiliser subsidy will be high for FY25 as well but international prices have come down. The earlier calculation is now redundant and next year, the fertiliser subsidy allocation will be less than Rs 1.75 lakh crore,” a government official told Moneycontrol.

P&K: The fertiliser subsidy for Phosphatic and Potassic (P&K) in FY24 is at Rs 60,000 crore, and the utilisation is expected to remain in the same range in 2024-25 because of low international  prices, he said.

Urea imports: The imported urea bill is expected to reduce by one-third from Rs 31,000 crore in FY24 to Rs 21,000 crore in 2024-25. 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.

Urea: Major expenditure deduction is expected in indigenous urea subsidy. From about Rs 1 lakh crore subsidy spent on indigenous urea in FY24 due to high natural gas prices, the Finance Ministry may look at allocating up to Rs 60,000 crore for it in 2024-25, the official said.

Urea contributes 55-60 percent of the total fertiliser consumption, which is met via imports and indigenous production. The urea subsidy scheme ensures constant availability of urea to farmers at the same price of Rs 242 per 45 kg bag excluding taxes and neem coating charges. The actual cost of the bag is around Rs 2,200.

Government push towards nano urea, the liberalised Market Development Assistance (MDA) Scheme and PM PRANAM (PM Programme for Restoration, Awareness, Nourishment and Amelioration of Mother Earth) are expected to result in less expenditure on subsidy towards indigenous urea and thus a lower allocation in FY25.

PM PRANAM

PM PRANAM incentivises state governments to reduce the consumption of chemical fertilisers and increase the use of bio and organic fertilisers. States that reduce consumption of chemical fertilisers as compared to their average of the last three years, get financial incentives. The consumption of chemical fertiliser that is reduced will be monetised and the state will get 50 percent of the subsidy saved as a financial incentive. This incentive is conditional upon chemical fertiliser consumption of neighbouring districts not increasing and the reduced consumption not being the result of floods or any natural calamity.

“As many as 22 states have submitted plans to reduce consumption of chemical fertilisers. Government is monitoring it and the financial incentive will be given from the capex spend allocation of FY25 and not from the budgeted subsidy. There will be a committee formed for it which will look into the increase in sown area of crops, the reduced consumption of chemical fertilisers, etc.,” the government official quoted earlier, said.

Market Development Assistance 

The MDA scheme promotes composting. The total outlay for the scheme is Rs 1,451 crore over three years, starting FY24. An assistance of Rs 1,500 per tonne will be provided to compost manufacturers. The scheme is likely to be expanded to organic wastes including biogas, green manure, and composting in rural areas. The scheme will promote the use of alternative fertilisers and complement the Swachh Bharat Mission.

Nano Urea

By 2025-26, eight Nano urea plants with a production capacity of 44 crore bottles equalling 195 lakh metric tonnes (lmt) of conventional urea will be commissioned.

Liquid nano urea, a nitrogen fertiliser that is said to be cheaper and more efficient, holds the promise of lowering imports of granular urea substantially. Liquid nano urea, developed using nanotechnology, can improve the efficiency of crop nutrients.