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The department of fertilizers (DoF) has projected the actual fertiliser subsidy spend for 2008-09, at prevailing (January) global prices for raw materials and finished fertiliser, at Rs 64,000 crore. However, it is unclear whether the amount will be allocated in full in the Budget. DoF had projected an actual spending of Rs 47,000-50,000 crore for 2007-08, but the Budget Estimate (BE) for the year was only Rs 22,500 crore. Indications are that this year too may see off-Budget spending.

Industry estimates, based on current annual supply levels (supply levels are much lower than the actual demand) and end-February global prices for raw materials and finished fertilizers, peg actual spend for 2008-09 at a much higher Rs 80,000 crore.

This also follows the fact that in just the one month, between end January and end February, global prices have shot up significantly for several of the inputs and finished fertilizers.

Lacking political consensus on payment of direct fertiliser subsidies to farmers (this may not cut down spends substantially in any case since 88% of the subsidy is on account of high global prices of inputs), the government will no more calculate subsidy to units on the basis of dispatches made from factory gate. Instead, to keep spends on a leash; subsidy from this kharif season will be calculated on the basis of actual amount of material that has reached specified destinations.

Compared to last year’s prices, the increase in price for both finished fertilizers and raw materials is marked. DAP (di-ammonium phosphate) prices in January this year skyrocketed to $900 a tonne compared to slightly over half that in 2007. The price of phosphoric adds a key ingredient to DAP, shot up to $1,500 a tonne. In December 2007, international prices of finished fertilizers and raw materials and intermediaries increased significantly, especially given higher imports by India. Farmgate cost of imported urea and DAP stood at about Rs 17,000 per tonne and Rs 27,000 per tonne compared to Rs 12,000 tonne and Rs 19,000 per tonne for domestic counterparts. The weighted average Farmgate cost of urea form gas-based plants is still lower at about Rs 8,000 per tonne. However, that has failed to impact demand. India imported 4.7 million tonne of urea in 2006-07 against no 

imports in 2000-01. Urea import during 2007-08 is estimated at 6.7 million tonne. Import of DAP has shot up from a meagre 861,000 tonne in 2000-01 to 2.88 million tonne in 2006-07 (up to December).

It is expected to shoot up further to about 3.2 million tonne in all.

The present gap between demand and domestic supply of finished fertiliser is around 10 million tonne. This ‘is likely to cross 16 million tonne by the end of the 11^th Five-Year Plan.