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Fertilizer Subsidy Doubles As Prices Surge

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To insulate farmers from the sharp increases in the prices, the Centre announced a doubling of fertiliser subsidy to Rs 2.15 trillion from the budgeted level for FY23. The move was necessitated by a sharp spike in global prices of urea, DAP and MoP in the last one year.

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What The Govt Said:

“Despite rising fertiliser prices globally, we have protected our farmers from such price hikes. In addition to the fertiliser subsidy of Rs 1.05 trillion in the Budget, an additional amount of Rs 1.10 trillion is being provided to further cushion our farmers,” the Finance Minister said.

About The Trend:

The Centre said the nutrient-based subsidy (NBS) rates for phosphatic and potassic (P&K) fertilisers for the kharif season (April-September, 2022) will be Rs 60,939 crore, as against Rs 57,150 crore for the whole of last year. These soil nutrients are largely imported.

The budget outgo on fertiliser subsidy was at Rs 1.6 trillion in FY22. Retail prices of phosphatic and potassic (P&K) fertilisers, including DAP were ‘decontrolled’ in 2010 with the introduction of a ‘fixed-subsidy’ regime as part of NBS mechanism. However, the subsidy on DAP saw an increase to 60% of cost in FY22, from a little over 30% previously.

According to fertiliser ministry data, imported urea prices have risen by more than 145% to $930 a tonne in April 2022 from $380 a tonne a year ago. Similarly, prices of DAP and MoP have risen by 66% and 116% to $924 a tonne and $590 a tonne in April 2022, respectively, compared to the year-ago period.

Main Cause:

Amid the Russia-Ukraine conflict, the price of pooled gas has risen 10% quarter-on-quarter in September 2022. The earlier expectation was prices would soften gradually. Each dollar’s increase in the price of pooled gas raises the government’s subsidy burden by 7,000 crore on domestically produced urea, which accounts for 85% of the production volume,” the report said quoting Naveen Vaidyanathan, Director, CRISIL Ratings.

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