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Urea imports may fall in 2022-23, but fertiliser subsidy bill will be bigger

The government’s fertiliser subsidy bill is likely to expand significantly in the current fiscal year as well as in 2022-23, in line with a trend that has seen the actual outlays exceed budget estimates

March 30, 2022 / 06:22 PM IST
Representative image.

Representative image.

International prices of key fertilisers had been on the boil for many months before Russia’s February 24 invasion of neighbouring Ukraine worsened the situation. Supply constraints and a gradual increase in energy prices was to blame for the rising prices; natural gas, for instance, is a key raw material in urea.

Given India’s heavy dependence on imports to meet its fertiliser needs, there is every possibility of the country’s fertiliser subsidy bill increasing in the current fiscal year as well as the next.

According to the Parliamentary standing committee on chemicals and fertilisers, India imports 25% of its urea requirement. Imports also make up a whopping 90% share of the country’s phosphatic fertiliser needs and 100% of potassic fertiliser requirements.

The committee noted that in 2021, the price of urea alone increased from $300 per metric ton (MT) in January to $1,000/MT by December the same year.

The cost of fertiliser imports will increase further due to the Ukraine conflict and blocking of supply chains from Russia and so on, said S Nand, acting director-general of the Fertiliser Association of India (FAI).

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“For the kharif season we are not highly dependent on imports and I do not see much of a problem in fertiliser availability. The fertiliser situation changes from year to year and depends on crops,” Nand told Moneycontrol.

Existing import markets for Di-Ammonium Phosphate (DAP) – Jordan, Morocco, Senegal – can be tapped for more volumes to make up for troubles in purchases from Russia and Ukraine although only small quantities of DAP are bought from these two countries.

As for urea, domestic production is already being ramped up by allowing existing production units to produce more and simultaneously commissioning new urea plants.

Subsidy math 

Mansukh Mandaviya, minister of chemicals & fertilisers, said in the Lok Sabha last month that despite the skyrocketing price of urea in the international market, the government had not raised the price for consumers and this has meant up to Rs 2,500 subsidy per bag of urea.

The minister also said that there has been no shortage of fertilisers for Indian farmers.

The Centre subsidises fertilisers through (i) subsidy for urea and (ii) a nutrient-based subsidy for phosphorus and potassium fertilisers. The fertiliser subsidy is provided to manufacturers and importers so that farmers can buy the soil nutrients at affordable prices.

The government’s fertiliser subsidy bill is likely to expand significantly in the current fiscal year as well as in 2022-23.

Nitesh Jain, director Crisil Ratings, said that in the past two years, actual subsidy requirements had been much higher than budget estimates.

“The BE for 2021-22 was Rs 79,530 crore but because of international price hike, additional subsidy of Rs 60,000 crore has been provided through revised estimates in the recent Budget announcements. But the actual requirement may still be higher, between Rs. 1.45-1.5 lakh crore. For 2022-23, the budgeted amount is Rs 1.05 lakh crore while our estimate is that subsidy requirement would be upwards of Rs 1.6 lakh crore.”

Oilseeds and fertilisers 

The country is expected to experience a jump in oilseeds production because of the government’s minim support price (MSP) policy, which is aimed at encouraging crop diversification.

In a blogpost, FAI’s Nand wrote that before the rabi sowing season began in the last quarter of financial year 2022, the government increased MSPs for rapeseed and mustard by 8.6% while the MSP for wheat was increased by merely 2%.

This focus on oilseeds has meant a commensurate increase in fertiliser demand in the rabi season (October 2021 to March 2022) given that, oilseed sowing area increased by about 14%.

Demand is expected to be higher for urea, nitrogen fertilisers (NP and NPK) and SSP by 3.3%, 9.8% and 38.9% respectively. Nand says that total domestic urea production will have gone up by just one tonne this fiscal year to 25.6 MT compared to 2020-21.

But the new fiscal year holds promise and domestic production of urea is expected to increase substantially since new plants are being commissioned and old ones are expected to produce more.

According to him, domestic urea production should exceed 30 MT in the financial year 2023 and reduce India’s dependence on imports.

Jain of CRISIL said that urea imports will decline to 15% of total requirement in the financial year 2023 from 27-28% in 2021. But what about non-urea fertilisers? Industry watchers say imports may continue to be the mainstay for non-urea fertilisers in the near future.



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Sindhu Bhattacharya is a journalist based in Delhi who writes on a range of topics in business and economy.
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