Fertiliser subsidy burden set to double on global supply crunch, Pg1

Key Highlights:

• India's fertilizer subsidy burden is projected to nearly double to Rs 3.4 lakh crore for the current fiscal year, significantly exceeding the Budget estimate of Rs 1.7 lakh crore.
• This surge is primarily due to rising global fertilizer costs and a severe supply crunch.
• The cost of a sack of fertilizer has increased from Rs 2,900 post-Covid to Rs 4,500 currently, while it is still sold to farmers at around Rs 300.
• The Iran war and resulting disruptions in global supply chains, particularly through the Strait of Hormuz, are major contributors to the price hike.
• The government is exploring increased imports from Russia and aiming to boost domestic production to mitigate the crisis.
• A significant concern is the diversion of subsidized fertilizers meant for farmers to industrial use.

Detailed Insights:

• The global fertilizer supply crunch is driven by geopolitical tensions, high energy prices, and export restrictions by major producers like China.
• The Strait of Hormuz, a critical maritime chokepoint, handles a substantial portion of global oil, liquefied natural gas, and fertilizer trade, making it highly vulnerable to disruptions.
• India's fertilizer subsidy mechanism involves providing urea at a fixed low price and offering a Nutrient Based Subsidy (NBS) for phosphatic and potassic fertilizers.
• The actual fertilizer subsidy for 2025-26 was Rs 2.11 lakh crore, surpassing the revised estimate of Rs 1.86 lakh crore.
• Beyond fertilizers, the government faces financial pressure from elevated fuel prices, with Rs 1.23 lakh crore revenue foregone due to excise duty cuts.
• The Finance Minister, Nirmala Sitharaman, identified fertilizers, fuel, and foreign exchange (the '3 Fs') as key areas requiring focus due to import dependence and pressure on the rupee.
• The fiscal deficit in April surged to Rs 3.62 lakh crore, representing 21.4% of the entire 2026-27 target, indicating broader economic strain.
• The diversion of subsidized fertilizers is being discussed at the highest levels across the Ministries of Agriculture, Fertilizers, and Finance.
• International urea prices have more than doubled, with India's recent purchases at $935-$959 per tonne compared to $410-$420 a year ago.

Key Concepts Involved:

• Fertilizer Subsidy: Financial assistance provided by the government to farmers to reduce the cost of fertilizers and ensure food security.
• Nutrient Based Subsidy (NBS) Scheme: A policy introduced in 2010 that provides a fixed per-kilogram subsidy on phosphatic and potassic (P&K) fertilizers based on their nutrient content.
• Fiscal Deficit: The difference between the government's total expenditure and its total revenue, excluding borrowings, indicating the government's borrowing requirement.
• Strait of Hormuz: A narrow, strategically vital waterway connecting the Persian Gulf with the Gulf of Oman, through which a significant portion of the world's oil, gas, and fertilizer trade passes.