Known unknowns of the fertiliser subsidy

Two policy tweaks to lower the govt's bill depend on weather, state of the global economy and the trajectory of the Russia-Ukraine war

- S DINAKAR

Tumbling global gas and liquefied natural gas (LNG) prices should please Finance Minister Nirmala Sitharaman as she prepares to present India's annual Budget for 2023-24 on February 1. If gas rates stay benign, after hitting unaffordable levels last year, Sitharaman can perhaps divert a huge chunk of the fertiliser subsidy to productive uses.

Last year, Narendra Modi's government proposed two measures to bring down the fertiliser subsidy bill. The first involves asking fertiliser companies to buy up to 20 per cent of their LNG needs directly or via the Indian Gas Exchange (IGX). The second proposal reviews the domestic gas pricing formula, and caps rates.

Can this make a difference? Consider, first, the dimensions of the problem.

The fertiliser subsidy is a big-ticket spend in the Budget, along with food. Fertiliser plants the subsidy goes to manufacturers, mainly urea makers, to compensate them for selling fertiliser below market rates are the biggest consumers of imported LNG. And fertiliser subsidies cannot be wished away because Prime Minister Modi, seeking a third term, can ill afford to anger the farm lobby.

With domestic gas production stagnant, India is at the mercy of global gas rates. Last year, spot LNG surged to over $50 per million British thermal units (mBtu), five times more than the rate India paid for LNG purchases in 2021-22. In February 2022, Sitharaman had allotted ₹1.05 trillion for 2022-23 to compensate fertiliser makers (imported LNG accounts for 77 per cent of gas use by the fertiliser industry).