75% of Modi govt’s new fertiliser subsidy grant of Rs 65,000 cr will only clear past dues

The The Modi government is set to utilise nearly three-fourth of the additional allocation of Rs 65,000 crore that it made towards fertiliser subsidy under the Atma Nirbhar 3.0 package, to clear the unpaid dues of fertiliser firms pending for years.  

The dues are estimated to be around Rs 49,000 crore. The remaining amount will be used to meet the enhanced requirements of the current fiscal year. 

Clearing of the payment backlog to firms will benefit both the companies and farmers as the latter will get assured access for their enhanced fertiliser requirements, said a senior government official, who did not wish to be identified. 

He added that the additional allocation will be used to clear past dues as well as meet the enhanced requirements of the current fiscal year. 

According to government sources, the funds allocated in the budget for fertiliser subsidy are typically Rs 10,000 crore to Rs 15,000 crore lower than what the actual requirement is for that fiscal. 

Budget allocations over the past few years show that fertiliser subsidy allocation in the budget has been around Rs 70,000 crore to Rs 80,000 crore as against a requirement of Rs 80,000 crore to Rs 90,000 crore (See graphic). 

This has meant that year after year, part of the dues remained unpaid and were carried forward to the next year. 

While the dues as of 1 April 2020 were around Rs 49,000 crore, they were around Rs 34,000 crore as of 1 April 2019. The additional allocation will mean that the dues as of 1 April 2021 will be nil or of a negligible amount, allowing the government to start the next fiscal year on a clean slate. 

“If one doesn’t pay fertiliser subsidy on time, it can impact the availability of fertilisers to the farmers,” the government official added. “A five to six month delay in payment of subsidy can cause a working capital problem for the firms, forcing them to borrow.” 

Subsidy to help 140 million farmers

Fertilizer companies are compensated based on their actual sales to beneficiaries. The subsidy is calculated as the difference between the actual cost of production and the maximum retail price fixed by the government.

Finance Minister Nirmala Sitharaman had announced last week that the government will provide an additional Rs 65,000 crore as fertilizer subsidy in the current fiscal. This would be over and above the government’s initial allocation of Rs 71,309 crore, taking the total allocation for fertilizer subsidy to over Rs 1.36 lakh crore. 

During the announcement, the government had pointed out that there is an estimated increase in fertiliser usage of 17.8 per cent to 673 lakh metric tonnes in the current fiscal over the actual usage of 571 lakh metric tonnes in 2019-20 on account of favourable monsoons and the resultant increase in sown area. 

“Increased supply of fertilisers at subsidised rates will help 140 million farmers. Rs 65,000 crores being provided to ensure adequate availability of fertilisers to farmers to enable timely availability of fertilisers in the upcoming crop season,” the government had said in its presentation while presenting the Atma Nirbhar package.  

Industry welcomes move

Change in cropping patterns has also led to increased fertilizer usage as some farmers have shifted to crops like paddy that need more fertilizers. 

The government will need parliamentary approval for the additional allocation and will include it in the next supplementary demand of grants. 

Industry welcomed the higher allocations.  

“We are grateful to the government. This will help in giving uninterrupted supply of fertilizers to the farmers. This will clear the outstanding dues of the fertilizer companies. We will start on a clean slate next year,” said Satish Chander, Director General, Fertilizer Association of India.