Sixth Pay Commission: Fertiliser subsidy: Govt may soon release Rs 50,000 cr

Sixth Pay Commission: Fertiliser subsidy: Govt may soon release Rs 50,000 cr

Joe C Mathew / New Delhi October 13, 2008, 0:58 IST

80% of delivered cost of fertiliser is realised from govt payouts.

The government may sanction nearly Rs 50,000 crore as the first supplementary grant for settling fertiliser subsidy bills in the upcoming Parliament session beginning October 17. It intends to issue bulk of this amount in cash and nearly Rs 12,000 crore in bonds to fertiliser companies.

The first supplementary demand for grants in 2008-09 is expected to be taken up for discussion and approval around October 20-22.

In the last few months, the Centre has committed itself to several new expenditure, including the farm debt waiver (which will cost Rs 25,000 crore this fiscal), Rs 22,100 crore on account of the Sixth Pay Commission award and several new social sector initiatives.

In addition, the government is expected to release around Rs 70,000 crore worth of bonds to public sector oil companies.

All this is expected to ease liquidity, a point that Finance Minister P Chidambaram emphasised last Friday. Referring to the first supplementary demand for grants, he told a private TV channel that “in about 10-12 days from today, when the supplementary is passed (by Parliament), a substantial amount of liquidity will be infused into the market”.

Also, the fertliser sector should be impacted positively. Although lower than the Rs 66,450 crore demanded by the Department of Fertilisers, the release of nearly Rs 50,000 crore will be a substantial move, say officials.

The entire amount, however, will not be for the fertiliser industry, as it includes Rs 22,000 crore that was released as the second tranche of the subsidy two months ago.

The government had asked public sector banks to disburse this amount to rescue fertiliser units from liquidity crunch. While Rs 22,000 crore will be for repayment to banks, the rest — Rs 16,000 crore in cash and Rs 12,000 as bonds — will be for fresh disbursements.

According to official sources, the finance ministry is in the process of finalising the subsidy break-up for various fertilisers like urea and di-ammonium phosphate (DAP).

Increasing prices of imported raw materials have resulted in a steep escalation of production costs in recent months. This had also compelled the department to revise its estimate of annual subsidy burden for 2008-09 from Rs 95,013 crore in March to Rs 1,19,772 crore in June.

Industry estimates put the current fertiliser subsidy at Rs 1,25,000 crore, three times larger than the actual subsidy burden (Rs 40,338 crore) shouldered by the government in 2007-08.

Meanwhile, the fertiliser industry is lobbying hard to ensure that the entire subsidy is paid in cash. “The liquidity crunch is severe and we cannot afford to get subsidies in bonds. The fertiliser bonds (worth Rs 7,500 crore) issued in 2007-08 were encashed at 10-15 per cent discount due to our urgent need for working capital. A similar situation now will put us in deep trouble,” said a fertiliser industry official.

The industry feels a cisis is imminent unless the government sanctions the entire amount at one go, “There may not be another session during the tenure of the current Parliament. If the entire amount is not sanctioned now, delay in payments is just a matter of months. That will lead to problems,” the official added.

The Fertiliser Association of India has also said that the industry wants the subsidy bill to be cleared on time as 80 per cent of the delivered cost of fertiliser is realised from government payouts.

The government had allocated Rs 30,986 crore for the fertiliser subsidy in the Union Budget 2008-09. It also released Rs 22,000 crore under a special arrangement in August.

Source: http://www.business-standard.com