India allocates extra $8.71 billion in fertilizer subsidy

India has earmarked an extra 650 billion rupees ($8.71 billion) in fertilizer subsidies for the current fiscal year, begun in April, Finance Minister Nirmala Sitharaman said on Thursday.

The government has decided to allocate the extra subsidy to ensure that there is adequate availability of fertilizer to farmers, Sitharaman said while announcing a third round of fiscal stimulus to help stressed sectors battling the COVID-19 pandemic.

Fertilizer demand starts picking up in October and November, when farmers plant their winter crops such as wheat and rapeseed.

Fertilizer consumption was reasonably high in the summer season as favourable monsoon rains encouraged millions of farmers to plant more area with crops such as rice, corn, cotton, soybeans and sugarcane.

As farmers are likely to expand areas planted with winter-sown crops due to the ample soil moisture, fertilizer demand is expected to go up again in the winter season.

"It was the best announcement we could have hoped for," said Satish Chander, director general of the Fertiliser Association of India, an industry group.

In the budget for the current 2020-21 fiscal year, unveiled in February, the government cut its allocation for fertilizer subsidy by 11% to 713.09 billion rupees.

Due to lower allocations in the budget, India often overshoots its fertilizer subsidy bill, which gets rolled over to next year, with the government often asking banks to fund subsidy gaps.

This invariably delays subsidy payments to fertilizer companies.

The extra allocation would resolve the issue of subsidy delays being faced by the fertilizer industry over the last several years, said K Ravichandran, senior vice president of ICRA, the Indian arm of global ratings company Moody's Investors Service.

The government compensates state and private fertilizer firms such as Coromandel International Ltd, Chambal Fertilisers and Chemicals Ltd, Gujarat Narmada Valley Fertilizers & Chemicals Ltd and Rashtriya Chemicals and Fertilizers Ltd for selling crop nutrients to the country's millions of farmers at discounted rates.