Fertiliser subsidy may bloat off-Budget burden

NEW DELHI: Finance minister P Chidambaram may not be working towards a tighter, leaner subsidy bill next year (2008-09) after all, despite indicating in the Budget (on the food subsidy front) that the government’s off-Budget liabilities would now finally show up as expenditure.

The department of fertilisers (DoF) has now estimated that dues to a colossal Rs 12,000 crore are still pending in concessions/subsidies for fiscal 2006-07 and will now be carried over into the fertiliser subsidy bill for 2007-08. In comparison, the fertiliser industry has estimated higher dues to the tune of Rs 15,000 crore will be carried over.
Totally, industry estimates had pegged the fertiliser subsidy requirement for 2006-07 at Rs 34,000 crore. Curiously, however, FM has kept the RE for 2006-07 much below this, but also pegged Budget Estimates for the current year (’07-08) at a marginally lower Rs 22,451crore, once again fighting shy of transparent budgeting of real subsidies.

In the revised fertiliser subsidy estimates for 2006-07, Mr Chidambaram finally acknowledged some hidden fertiliser subsidies to the tune of Rs 5,200 crore (including supplementary grants), thus boosting the Revised Estimates for 2006-07 to a massive but more honest and transparently accounted-for Rs 22,452 crore. But even this partial disclosure of real pendings on politically and economically sensitive fertiliser subsidies ony transpired only after intense pressure from a working-capital choked industry for the last three years.

Points out RC Gupta, deputy DG of the Fertiliser Association of India “ It is really shocking that the amount of subsidy carryover continues to increase year after year. Carryover dues were to the tune of Rs 3,800 crore from 2004-05 too 2005-06; Rs 6,000 crore from 2005-06 to 2006-07 and now Rs 12,000 crore from 2006-07 to 2007-08.” In effect, the government is spreading its mammoth subsidy pendings over the years in order to show off a rationalised, lean and mean (if non-existent) accounting for the current year.

That spells big trouble for the industry. Government sources acknowledge “With the provisions made in the Budget for 2006-07 RE, subsidy bills of the industry have been cleared only up to October-November in the case of urea and July-August in the case of decontrolled fertilisers,” government sources acknowledge.” This could mean that, given the drastically pared down provision of Rs 22,452 crore for 2006-07, payments to industry would only begin in late April or early May 2007. Worse, payments to the industry in 2007-08 could well stop as early as August 2007.

Indigenous production assumes special significance since prices of fertilisers such as Urea and DAP have gone up as high as $330 C&F per tonne respectively in the international market. That will obviously result in even higher subsidy bills in the coming years. Just this year, the government imported 11-million tonnes of fertiliser including urea, DAP and MoP.