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“Our evaluation assumes 3 per cent year-on-year development in demand for fertilisers and a moderation of uncooked materials and fertiliser costs within the second half of this fiscal. If demand is larger than anticipated, or enter costs don’t soften even within the second half, the subsidy invoice might inch as much as Rs 1.8-1.9 lakh crore,” the report added.
In line with the report, up to now two fiscals, the federal government has paid a further Rs 1.2 lakh crore and elevated the budgeted subsidy.
Nevertheless, the steep rise in uncooked materials costs has been negating this and one other intervention could also be wanted in 2022-23, the Crisil report famous.
“Over 85 per cent of the subsidy arrears may very well be contributed by urea. It’s because pooled fuel costs – a mix of home fuel and imported LNG thought of for billing to fertilisers crops – had shot up greater than 75 per cent final fiscal, and is anticipated to stay elevated for many a part of 2022-23, due to the Russia-Ukraine battle,” Crisil Rankings director Nitesh Jain stated.
On the similar time, retail costs of urea have stayed put, growing the federal government’s subsidy burden, he famous.
“This could be regardless of some respite possible from the commissioning of recent home capacities that would doubtlessly halve India’s import dependence for urea from practically 28 per cent in fiscal 2021,” he added.
The retail promoting worth (RSP) of urea is mounted by the federal government, the report defined.
To spur farmers to make use of fertilisers for higher crop yield, the federal government retains the RSP considerably decrease than the market fee, and reimburses the urea makers by subsidy funds, it stated.
Whereas this protects the profitability of urea makers to a big extent, the RSP remaining unchanged regardless of rising prices will imply the federal government should foot a much bigger subsidy invoice, it added.
Likewise, costs of phosphoric acid and rock phosphate – elements for non-urea fertilisers – have additionally gone up by 92 per cent and 99 per cent, respectively, up to now 12 months by March 2022.
Additional, provided that Russia, Belarus and Ukraine are the key suppliers of non-urea fertiliser elements, the continuing battle will solely exacerbate the state of affairs, it acknowledged. Whereas non-urea makers have hiked costs, it is probably not enough to cowl the escalation in price, Crisil stated.
For non-urea fertiliser makers, the federal government pays subsidy as per the nutrient-based subsidy (NBS) charges, that are but to be introduced for this fiscal.
On this backdrop, the credit score profiles of fertiliser makers will rely on elements like further subsidy outlay, primarily for urea makers, and revision of NBS charges for non-urea makers.
Any delay in, or inadequacy of, subsidy funds can have a bearing on the money flows of fertiliser makers, and result in larger working capital wants, the report added.
