Subsidy allocation for 2020-21: May be much lower than what is needed

Posted by Ankit khatkar on January 29th, 2020

Care Ratings has made an estimate of Rs 0.85 lakh crore, of which Rs 0.55 lakh crore towards the urea subsidy and around Rs 0.30 lakh crore towards the nutrient-based subsidy. This is only a marginal increase over the current year's budget of Rs 0.80 lakh crore. With new urea units coming into production, the subsidy allocation if it stays sat Rs 0.85 crore will be insufficient.

What is more, how will the overhand from the current financial year of Rs 40,000 crore and the extra Rs 5000 crore to be given as a capital cost dispensation (Rs 350 per tonne) is going to be handled remains a moot point

If the allocation is pegged low, the coming year may not be a great year for the industry.

The rating agency on its budget expectation for 2020-21 has made the following comments:

Fertilizers:-

The fertilizer industry during the FY20 budget received Rs 0.80 lakh crore as subsidies where Rs 0.54 lakh crore was earmarked for urea and the remaining Rs 0.26 lakh crore was to be nutrient-based (NBS). The overall fertilizer subsidy had been increased by 14.1% and allocations towards the urea and NBS were increased by 19.2% and 5.1% respectively. We expect an increase in allocation towards nutrient-based subsidy. The focus of the govt is to enhance the agricultural sphere of the state and to spice up the farmer’s income. In order to achieve the aforementioned goal, the production of fertilizers will have to be increased as it would help in increasing the productivity of land and farm produce and will also aid the world in implementing DBT 2.0.

An increase in allocation towards the nutrient-based subsidy will promote a more balanced usage and encourage the assembly of decontrolled fertilizers. The subsidy towards the fertilizer sector can be ~Rs 0.85 lakh crore: ~Rs 0.55 lakh crore towards the urea subsidy and ~Rs 0.30 lakh crore towards the nutrient-based subsidy.