India likely to overshoot fertiliser aid bill by $4.2 bln, banks may chip in -sources

Gujarat Narmada Valley Fertilizers & Chemicals

14/01/2019 10:54

By Aftab Ahmed and Rajendra Jadhav
    NEW DELHI/MUMBAI, Jan 14 (Reuters) - India is likely to
overshoot its fertiliser subsidy bill for this financial year by
300 billion rupees  ($4.2 billion), three sources with direct
knowledge of the matter said, and the government could tap state
banks to fund the extra spending. 
    Prime Minister Narendra Modi's government budgeted 700.8
billion rupees for fertiliser subsidies for the 2018/19 year
ending March 31, but the sources said nearly half of the money
was used to settle dues from the previous year. 
    A rise in fertiliser prices overseas and a fall in the rupee
currency also made imported fertilisers more expensive, lifting
the total subsidy requirement for the year to 1 trillion rupees,
the highest ever, the sources said.  urn:newsml:reuters.com:*:nL3N1YQ3YR 
    Since the Ministry of Finance denied extra money to the
Ministry of Chemicals and Fertilizers for this year, the
government is considering a "special banking arrangement" for
local fertiliser companies, two of the sources said. 
    Such a move would be in keeping with other recent
financially-draining measure taken by Modi's government to win
the support of farmers, small business owners and the less
well-off, after the ruling party suffered setbacks in state
elections and with a general election due in months.
 urn:newsml:reuters.com:*:nL3N1ZB1YU 
    The bank route could also help the government meet its
decade-low headline fiscal deficit target of 3.3 percent of the
gross domestic product. 
    The Comptroller and Auditor General of India, which has the
authority to review state and national budgets, last week
criticised the government for increasingly resorting to
"off-budget financing https://cag.gov.in/sites/default/files/audit_report_files/Report_No_20_of_2018_Compliance_of_the_Fiscal_Responsibility_and_Budget_Management_Act_2003_Department_of_Economic_Affairs_Minis.pdf
" - such as asking banks to fund subsidy gaps - and said such
arrangements had "fiscal implications". 
    A spokesman for the Ministry of Finance declined to comment.
The fertiliser ministry did not immediately respond to an email
seeking comment. 
    In the past, too, India has rolled over subsidy requirements
by using special arrangements with banks such as State Bank of
India  SBI.NS  or by delaying payments to companies. 
    "Considering the poor tax collections, we don't think the
government would pay the entire subsidy this year," said a
senior official with a co-operative fertiliser company,
declining to be named or to identify his employer. 
    "Like last year, it will be rolled over to the next year." 
    Monthly goods and services tax collection has been averaging
below expectation at 967.8 billion rupees since April, compared
with an average target of over 1.2 trillion rupees. 
    For the next fiscal year the fertiliser ministry has asked
for 1 trillion in subsidies from the finance ministry, which
will present an interim budget for next fiscal year on Feb. 1,
ahead of a general election due by May. 
    The Indian government compensates state and private
fertiliser companies such as Coromandel International Ltd
 CORF.NS , Chambal Fertilisers and Chemicals Ltd  CHMB.NS ,
Gujarat Narmada Valley Fertilizers & Chemicals Ltd  GNFC.NS  and
Rashtriya Chemicals and Fertilizers Ltd  RSTC.NS  for selling
crop nutrients to the country's millions of farmers at
discounted rates. 

    ($1 = 70.7900 Indian rupees)

 (Reporting by Aftab Ahmed in NEW DELHI and Rajendra Jadhav in
MUMBAI; Editing by Krishna N. Das; Editing by Tom Hogue)
 ((rajendra.jadhav@thomsonreuters.com; +91-22-6180-7153 ;
Reuters Messaging:
rajendra.jadhav.thomsonreuters.com@reuters.net))