IGI Logo

 A rise in the prices of natural gas and other raw materials is expected to raise the Centre's fertiliser subsidy bill by 62 per cent to Rs 130,000 crore in FY22, Crisil Ratings said.

The rise in subsidy bill is despite the sales volume having declined 10 per centAyear-on-year, the ratings agency said.

The Centre typically keeps retail sales price of fertilisers significantly lower than the market rate, and reimburses the difference to manufacturers through subsidy payments in order to encourage farmers to use fertilisers for better crop yield, it said.

"The government has been proactive given the strategic importance of the fertiliser sector. It has already announced an additional subsidy of Rs 21,328 crore for non-urea fertilisers. Despite this, there will likely be a shortfall of Rs 30,000 crore, largely for urea," Crisil Ratings Director Nitesh Jain said.

Sales have been affected this year because of the erratic spatial distribution of the southwest monsoon.

In terms of profitability, urea makers are unlikely to be affected as the higher cost of gas is taken care of by the Centre, by paying out the difference through its retail sales price mechanism.

"For non-urea fertiliser makers, while the selling price is not fixed, the government pays subsidy as per the nutrient-based subsidy scheme rates," the agency said.