Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
Opinion

Ditching the fertilizer subsidy

After elections, how would it be to let go of the full fertilizer subsidy? If I recall right, the fert. subsidy bill was greater than 100,000 cr. – paid in bonds to fertilizer companies to make up for revenue shortfalls due to the fixed selling prices and rising costs.

If crude prices have mellowed (helps cut costs) and gas goes direct to fertilizer plans through Reliance, the subsidy may not be required. In fact, post elections, if we raise fertilizer prices a bit, we could cut the subsidy down to 25K cr. Which should reduce government borrowing by 75K crore. That is about 1.5% of our GDP.

It will take political will, but it might be a plan to reduce the deficit. Thoughts?

  • Ravi Purohit says:

    >with the kind of decline we’ve seen in crude oil prices and with RIL ready with its gas, there may not be any subsidy left for GoI to pay to fertilizer companies. What’s more, subsidy in case of petro products will also shrink quite dramatically…together the two can potentially save an amount in the north of Rs 1.5-1.75 lac crore for GoI.

  • Deepak Shenoy says:

    >I agree – this should be hugely positive for the deficit.

    On another note, I’m trying to see the benefit to RIL in year 1 – not quite as much – probably about 8000 cr. in revenue and about 1000 cr. in profits per year.

    Hoping here that crude prices don’t spike back up.

  • siddharth says:

    >Hold your horses! If the decision was made to nullify the outstanding loans to farmers, then how can one expect for the political will to go aainst the vote bank?

    true its being optimisticaly optimistic about the political ‘will’.

    good day.

  • Tarun Surana says:

    >Subsidy will be reduced, but won’t go away entirely. Even with Reliance gas, Urea production cost comea at 10-11,000 per tonne where as selling price is fixed at 4860 per tonne.