India on Wednesday cut subsidies for potash-based fertiliser by 9% to the lowest in a decade, as the world's leading importer of the crop nutrient tries to contain a fiscal deficit.
The reduction in government support amid a slide in the rupee currency could lead to higher retail prices for farmers and potentially dent consumption and imports.
India has fixed the potash subsidy at 10.116 rupees per kg for the 2020-21 fiscal year started on April 1, down from 11.124 rupees the year before, a government statement said.
Global producers including Uralkali <URKA.MM>, Nutrien <NTR.TO>, K+S <SDFGn.DE>, Arab Potash <APOT.AM> and Israel Chemicals (ICL) <ICL.TA>, <ICL.N> are key suppliers to India.
India relies on imports to fulfil its entire consumption of potash, bringing in more than 4 million tonnes every year.
"Already imports have become expensive due to the weak rupee and now you have lower subsidy. Fertilizer producer have no choice but to raise prices sometime later this year," said an official with a leading potash importing firm.
The Indian rupee hit a record low on Wednesday.
Indian farmers are price sensitive and have in the past trimmed purchases when prices rose, industry officials said.
The drop in subsidy will affect India's negotiations with overseas suppliers for new contracts, said a New-Delhi based fertilizer producer.
"Importers will obviously try to settle new contracts at lower level," the official said.
India buys potash from global miners in annual contracts that the south Asian country could sign after May, industry officials said.
Contracts signed by India and China are considered benchmarks globally, and are closely watched by other potash buyers such as Malaysia and Indonesia.
On Wednesday, New Delhi also cut its phosphate subsidy by more than 2% for 2020-21 to 14.888 rupees per kg, the lowest in three years, it said.
India is the world's top importer of the crop nutrient diammonium phosphate (DAP).