India likely to overshoot fertilizer bill by $4.2 billion, banks may chip in

India is likely to overshoot its fertilizer subsidy bill for this financial year by Rs 300 lakh crore ($4.2 billion), three sources with direct knowledge of the matter stated, and the government could tap state banks to fund the extra spending.

Prime Minister Narendra Modi’s government anticipated Rs 700.8 lakh crores for fertilizer subsidies for the 2018/19 year ending March 31, but the sources said nearly half of the money was used to settle dues from the previous year.

An increase in fertilizer prices overseas and a fall in the rupee currency also made imported fertilizers more expensive, lifting the total subsidy requirement for the year to 1 trillion rupees, the highest ever, the sources said.

Since the Ministry of Finance denied extra money to the Ministry of Chemicals and Fertilizers for this year, the government is relating a “special banking arrangement” for local fertilizer companies, two of the sources said.

Such a move would be in keeping with other current financially-draining measure taken by Modi’s government to win the support of farmers, small business owners and the less well-off after the ruling party suffered setbacks in state elections and with a general election due in months.

The bank route could also help the government meet its decade-low headline fiscal deficit aim of 3.3 percent of the gross domestic product.

The C&AG of India, which has the authority to review state and national budgets, last week criticized the government for increasingly resorting to “off-budget financing” – such as asking banks to fund subsidy gaps – and said such arrangements had “fiscal implications”.

A spokesman for the Ministry of Finance declined to comment. The fertilizer ministry did not sudden respond to an email seeking comment.

In the past, too, India has rolled over subsidy needs by using special arrangements with banks such as State Bank of India or by delaying payments to companies.

“Considering the poor tax collections, we don’t think the government would pay the entire subsidy this year,” said a senior official with a co-operative fertilizer company, declining to be named or to identify his employer.

“Like last year, it will be rolled over to the next year.”

Monthly goods and services tax collection have been averaging below expectation at 967.8 billion rupees since April, compared with an average aim of over Rs 1.2 lakh crore.

For the next fiscal year, the fertilizer ministry has asked for Rs 1 lakh crore in subsidies from the finance ministry, which will show an interim budget for next fiscal year on Feb. 1, ahead of a general election due by May.

The government compensates state and private fertilizer companies such as Coromandel International Ltd, Chambal Fertilisers and Chemicals Ltd, Gujarat Narmada Valley Fertilizers & Chemicals Ltd and Rashtriya Chemicals and Fertilizers Ltd for selling crop nutrients to the country’s millions of farmers at discounted rates.


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