New Delhi, Jan. 17: Fertiliser subsidy for the current year has nearly doubled to Rs 34,000 crore from Rs 17,252 crore allocated in the budget, leaving a gaping hole in fiscal deficit.
Wary of the impact on the treasury, the government has not paid fertiliser manufacturers their back dues. It is unlikely to clear the entire backlog within this financial year.
Government officials said the subsidy this year to domestic manufacturers and importers was likely to be Rs 22,000 crore. It is widely expected within the government that a report being prepared by a high-level committee comprising the secretaries in the ministries of finance, fertilisers and agriculture will provide the roadmap to reduce subsidies.
The government, however, needs to show immense resolve since any cuts will not go down well with farmers, especially of the four states that are going to the polls this year. The states include Uttar Pradesh and Punjab which have a predominantly agricultural population.
The aim is to cut the subsidy by having a flat rate for all types of fertilisers, a line being advocated both by the finance ministry and the Planning Commission.
The government wants all fertiliser units to become gas-based within a timeframe of two years to five years since subsidy on gas is the least.
However, the finance ministry wants to hasten up the process of the units becoming gas-based to just three years as it feels the mounting fertiliser bill is beyond its means.
The difficulty is over arrangements for gas supplies, given the constraints in obtaining gas from Iran and Myanmar.
There are fears that even the more relaxed time-table of two years to five years may go awry. Top officials said the government would frame strict guidelines recommending just import parity price for those who fail to switch over to gas.
The problem is the sale price for a tonne of urea is just Rs 4,830 whereas production costs vary from Rs 5,000 a tonne to Rs 21,000.
It is estimated that naphtha-based plants are the costliest, producing urea at Rs 20,000-21,000 a tonne. Urea from fuel oil costs about Rs 12,000, while from natural gas it is Rs 5,000-6,000 a tonne.