Concerned over acute liquidity crunch faced by the Indian fertiliser sector, Fertiliser Ministry is likely to ask the government for more funds under the special banking arrangement for subsidy payment to indigenous urea manufacturers. Under the special banking arrangement, banks provide loans to pay subsidies and a major part of interest are paid by the Fertiliser Ministry.
So far this year, government has released about Rs 28,122 crore for fertiliser subsidy out of which Rs 13,173 crore allotted for indigenous urea which has almost been finished and the ministry is now cash-strapped. The Finance Ministry, in its interim budget, had allocated Rs 65,970 crore for fertiliser subsidy against the estimated bill of Rs 1.05 lakh crore including last year's arrears.
Presently urea is sold at a maximum retail price (MRP) of Rs 5,360 per tonne to farmers and the difference between production cost and MRP is reimbursed to manufacturers in the form of subsidy. The government has recently approved the modified New Pricing Scheme (NPS) III for urea under which it has increased fixed cost of urea by up to Rs 350 per tonne. The move is likely to increase in subsidy burden to government by about Rs 900 crore.
Urea is the only fertilizer whose 80% demand is met through the domestic production. Presently, there are around 30 large size urea plants in the country comprising installed capacity of around 21 million tonnes. India was self sufficient in urea production till 2001-02, however with the rising demand and the lack of major investments, domestic demand has outpaced the production. India produces about 22 million tonnes of urea in a year, as against the demand of over 30 million tonnes. The remaining demand is met through the imports.