Budget 2020 may spell out steps to implement the next phase of DBT

The fertiliser industry may not see major action in the Budget FY2020-21, despite huge expectations.

The agricultural sector is currently in a tough phase and this has impacted agri-incomes. With the Union Budget just around the corner, expectations are high that the government will address agrarian distress, which will better farm incomes.

Towards this end, it may increase budgetary support for farm credit, irrigation infrastructure development schemes and the income support scheme - PM-KISAN.

Further, the government may combine the Agricultural Product Market Committee (APMC) with the e-National Agricultural Market (e-NAM) platform into one entity. The revamping of crop insurance schemes with a view to improving the income of farmers could also get attention.

It is also pertinent that sectors such as animal husbandry, poultry and dairy farming receive attention as they are allied to agriculture and; supplement the income of farmers. The will be in line with the government’s push on doubling farmer income.

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Sr. Vice-President, Co-head Corporate Sector Ratings|ICRA Ltd

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For the fertilizer industry, inadequate subsidy allocation in the past few years has increased the sector’s woes.

Consequently, a large subsidy backlog has been created and this coupled with huge working capital borrowings has impacted and weakened the industry’s financial profile.

The government is not expected to provide any supplementary grants to meet the subsidy requirement in the current fiscal year, FY2020 as it too is facing limitations on the fiscal front. Though a Special Banking Arrangement (SBA) to provide some financial succour to the fertiliser industry for the remaining fiscal is not ruled out.

The budgetary allocation for the fertiliser subsidy for FY2021 is not expected to be materially different from FY2020 as the government’s emphasis is on reducing the subsidy outgo.

It has taken many steps such as reducing the bag size of urea from 50 kg to 45 kg, tightening energy norms for plants, etc. Given the reduced raw material and finished fertiliser prices for P&K fertilisers, a moderation in the subsidy rates for phosphatic fertilisers can be expected.

With retail urea price remaining unaltered for a long time, there has been a discussion around upward revision in the retail prices and reduction in the subsidy component.

There have been suggestions about the implementation of the Nutrient Based Subsidy (NBS) scheme for urea but the same is unlikely to be implemented in the near to medium term.

There are several operational issues such as heterogeneity in the cost structure of urea plants and a separate policy dispensation in place governing greenfield urea plants.

It is however likely that the government may announce a roadmap for the revision in the retail urea prices and implementation of the NBS scheme for urea over the next few years.

The Budget may spell out steps regarding the implementation of the next phase of Direct Benefit Transfer (DBT) and integration with various schemes like Soil Health Card (SHC) scheme etc.

The author is Senior Vice President & Group Head-Corporate Ratings, ICRA

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