Domestic fertiliser sales is likely to surge to 10 percent to a record 68 million tonne in 2020-21 following a good monsoon, which is well above the 3 percent annual growth rate that was witnessed since the last five years, according to a report.
Crisil Ratings in a report stated that fertiliser sales in the country is set to surge 10 percent to a record 68 million tonne this fiscal following a good monsoon.
Also, the timely disbursement of the Rs 65,000 crore additional subsidy announced by the government under the Atmanirbhar Bharat Package 3.0 last November can support the credit profiles of fertiliser manufacturers, it added.
For the government, the upcoming budget for fiscal 2022 is an opportunity to address the issue of subsidy arrears in two ways, one is providing the entire additional subsidy for this fiscal and the other is budgeting for adequate subsidy next fiscal, it said.
Rising subsidy arrears and, as a result, piling up of debt have been a structural issue for the fertiliser industry since long.
The additional subsidy, assuming there is no further build-up of arrears going forward, can spawn a structural improvement in the credit profiles of fertiliser companies.
Disbursement of additional subsidy can reduce the industry’s debt by a significant three-fourth, and debtor days to below 50 days from 200 days by the end of this fiscal, Crisil Ratings Senior Director Manish Gupta said.
The report further noted that to incentivise farmers to use fertilisers for better crop yield, the government keeps the retail selling price of fertilisers significantly lower than the actual cost, and reimburses the deficit to fertiliser manufacturers through subsidy payments.
The fertiliser industry’s subsidy arrears are estimated to have ballooned to Rs 50,000 crore by the end of the last fiscal because of rising sales and continuous under-budgeting over the years, it stated.
For the current fiscal, the subsidy budgeted was Rs 71,000 crore and if the additional subsidy of Rs 65,000 crore is added, the total subsidy allocated in financial year 2021 will be Rs 1.36 lakh crore.
Given that the subsidy required is Rs 82,000-85,000 crore in 2020-21, there would be a surplus of Rs 52,000-55,000 crore, said the report adding that this can clear almost the entire backlog of subsidy arrears.
In addition, the report also stated that healthy demand augurs well for fertiliser manufacturers as well. Higher sowing and early fertiliser purchases by farmers to secure supply amid the pandemic-induced uncertainty have meant the sales volume rose 11.7 percent in the first nine months of this fiscal.
The monsoon this season has been a blessing.
Higher sowing and early fertiliser purchases by farmers to secure supply amid the pandemic-induced uncertainty have meant the sales volume rose 11.7 percent in the first nine months of this fiscal.
"Additionally, reservoir levels are at 117 percent of the past 10-year average, and soil moisture levels materially better. Not surprisingly, kharif sowing was the highest ever, while rabi sowing is up 2 percent on-year,” Crisil Ratings Director Nitesh Jain said.
The fertiliser sector is of high strategic importance to the government given its direct impact on agriculture and the rural economy, the report added.