Subsidy under Nutrient Based Subsidy scheme increased

NEW DELHI: The government on Thursday announced an increase in the subsidy for potash and di-ammonium phosphate (DAP) under the Nutrient Based Subsidy (NBS) scheme. Stocks of fertiliser companies including Zuari, Tata Chemicals and RCF firmed up on the stock exchanges after the decision by the cabinet committee on economic affairs, or CCEA.

The decision could, however, increase the government’s subsidy bill by about Rs 3,000 crore. The government lifted the subsidy on potash, which is entirely imported as there are no domestic sources, to $420/ tonne from $390/tonne, while that on DAP was hiked to $612/ tonne from $580/tonne.

This is the upper bound of price up to which the government will reimburse the industry on imports under the nutrient based subsidy regime. Anything beyond this has to be absorbed by the companies or passed on to the farmer. However, the revision does not mean that the retail prices will not go up further. "Even at $612/tonne, industry has not been able to import enough (DAP)," says Tarun Surana of Sunidhi Securities.

"While there are enough supplies for now, if prices do not correct internationally in another 3-4 months, the Indian consumer may have to fork out more per bag of DAP for the winter sowing season," he said. Prices for potash in the international market are now hovering around $500/ tonne as against the weighted average benchmark price of potash at $350/ tonne last year.

The decision to hike subsidy levels yet another time comes in the wake of apprehensions within the government that the country could find itself short supplied on key fertilisers for kharif and rabi sowing seasons . Analysts contend that while there may be enough fertilsiers for the coming summer season, normal rains forecast would mean a high consumption in the winter season, which could create supply issues.

Industry has already declared a potash import "holiday" for fiscal 2011-12 with the objective of forcing suppliers to cut prices by 10% on the current quoted price of 500/tonne.