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UPDATE 1-India cuts subsidy on most fertilizers for 2012/13
March 1, 2012 / 10:46 AM / 5 years ago

UPDATE 1-India cuts subsidy on most fertilizers for 2012/13

(Adds quotes, details)

By C.K. Nayak and Rajendra Jadhav

NEW DELHI/MUMBAI, March 1 (Reuters) - India will cut by a fifth the subsidy it gives to phosphate and potash-based fertilisers in 2012/13, the government said in a statement on Thursday, its latest step aimed at patching up its widening fiscal deficit.

Subsides to diammonium phosphate (DAP) and muriate of potash (MoP) fertilisers will be slashed by 27.4 percent and 10 percent respectively. But it left out urea, the most used crop nutrient that accounts for the bulk of the government's spending on fertilisers.

The subsidy for DAP will stand at 14,350 rupees ($291.7) per tonne in next financial year beginning from April compared to 19,763 rupees for the current year. For MoP, the same has been fixed at 14,440 rupees per tonne against 16,054 this year.

Subsidy rates for nitrogen, phosphate and potash nutrients are also being cut by 11.6 percent, 32.6 percent, and 10.3 percent respectively. It kept the sulphur subsidy steady at 1.677 rupees per kg.

Indian farmers have complained over a sharp rise in retail prices of fertilisers, especially of DAP and MoP in the past year. Analysts said with the subsidy cut, retail prices of fertilisers were unlikely to go down.

"This is negative for complex fertilisers as reduction in subsidy will limited industry's ability to reduce maximum retail price for farmers," Tarun Surana, analyst at Sunidhi Securities & Finance in Mumbai, said in a research note.

"Reduction in maximum retail price would have been helpful to avoid strong resistance in accepting higher prices among farming community."

India imports all its potash and also buys about 90 percent of its phosphate from abroad. Potash Corp, Mosaic Co , Agrium Inc, Uralkali, Arab Potash Co, ICL Israel Chemicals and K+S are among the major potash suppliers to India.

Moroccan phosphate producer Office Cherifien des Phosphates (OCP), PhosChem and Russian fertiliser group Phosagro are key DAP supplier to India.

The country's biggest importer, Indian Farmers Fertiliser Co-operative Ltd (IFFCO), said it was not planning to raise prices despite the proposed subsidy cuts.

"We will not raise retail prices of DAP and MoP due to lower subsidy," U.S. Awasthi, IFFCO managing director, told Reuters.

"Instead we will try to secure imported raw material supplies at lower price."

New Delhi is widely expected to miss by a long chalk its deficit target of 4.6 percent of GDP for 2011/12. It approved this week a plan to sell some of the government's shareholdings in state-run Oil and Natural Gas Corp through a share auction.

The fertiliser subsidy bill for 2011/12 is likely to hit 900 billion rupees, more than double the budget estimate, Finance Minister Pranab Mukherjee said last year.

The government began providing fertiliser companies subsidy for potash, phosphate and complex fertilisers based on content of the nutrient in the fertilisers in 2010. ($1= 49.2 Indian rupees) (Additional reporting by Kaustubh Kulkarni in MUMBAI; editing by Krittivas Mukherjee)

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