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Potash Subsidy By Nearly A Fifth, To Hit Imports
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India has cut potash subsidy by nearly a fifth to Rs 9,400 per tonne for the year starting April in an effort to contain a ballooning fiscal deficit. A smaller subsidy would keep retail potash prices high despite a drop in overseas prices, dashing hopes for a recovery in demand in one of the world's top importers of the fertiliser. Global miners have been banking on Indian imports to help counter a slump in prices.
Potash subsidy was cut by Rs 3.33 per kg for 2014-15 financial year on Thursday (27 March) resulting in saving of Rs 900 crore to the exchequer, but said the move would not lead to increase in retail prices.
The Cabinet Committee on Economic Affairs (CCEA) approved subsidy of P&K (Phosphatic and Potassic) fertilisers for next fiscal wherein it has recommended constant subsidy rates for all the complex fertilisers, barring potash.
"Cabinet has decided to reduce subsidy on potash taking into consideration the fall in international prices.
Consequently, this will not put additional burden on farmers.
Subsidy on potash will come down to Rs 15.50 per kg from Rs 18.83 per kg earlier," Fertiliser Secretary Shaktikanta Das told PTI.
The Fertiliser Ministry had taken approval of the Election Commission to move this proposal before the Cabinet.
The secretary said the total subsidy on fertilisers is likely to come down by Rs 900 crore per annum after cut in subsidy of potash.
Potash is normally sold in Indian markets at around Rs 16,000 per tonne, while phosphate is available at about Rs 22,500 per tonne. MoP (Muriate of Potash) is widely used by farmers apart from urea and Di-Ammonium Phosphate (DAP). MoP is largely imported to meet domestic demand.
According to industry experts, global prices of potash has fallen by about USD 60-100 per tonne to around USD 320 per tonne.
Except potash, the CCEA kept the subsidy on other major complex fertiliser phosphate at last year's level as the global prices were stable.
Commenting on the development, P S Gahlaut, Managing Director of Indian Potash Ltd (IPL), which imports fertiliser on behalf of the government, said: "The Decision to decrease subsidy on potash is appropriate as potash prices in the international market has come down."
During the past one year, the total demand of both potash and phosphate was more than 10 million tonnes.
In April 2010, the government decontrolled the P&K (non-urea) fertilisers by giving freedom to the manufacturers to fix MRP (maximum retail price). The Centre offers a fixed nutrient based subsidy (NBS) on P&K nutrients to keep domestic rates lower.
However, in case of urea, the MRP is fixed at Rs 5,360 per tonne and subsidy keeps changing depending upon the production cost of domestic urea and landed cost of imported urea.
India relies on overseas supplies to meet its entire potash demand. It has accounted for about a tenth of global shipments over the past five years, but its share has been slipping as local prices rise due to subsidy cuts and a weaker rupee.
Reuters exclusively reported last month that India will cut the potash subsidy by nearly a fifth.
Retail potash prices in India have doubled since 2011 to Rs 17,000 a tonne as India cut subsidies in the last two years - including a 21.5 percent reduction in 2013-14 - and due to a weak currency.
"Since the government can't reduce subsidy for urea, it chose potash. Now fertiliser companies are not in position to pass on the drop in global prices to farmers," said an official with a private fertiliser company based in Mumbai.
Nitrogenous fertiliser urea is the most used and politically sensitive fertiliser in the country.
Global potash prices have fallen more than 20 percent to around $310 per tonne since Russia's Uralkali <URKA.MM>, broke away from trading venture Belarusian Potash Company (BPC) in July.
Higher Indian purchases would allow potash prices to rebound, but now that seems unlikely, the fertiliser company official said.
India's potash imports would remain largely steady around 3.5 million tonnes in 2014-15 due to the subsidy cut, P.S. Gahlaut, managing director of Indian Potash Limited, the country's biggest importer, said this month.
Potash imports deals for 2014-15 year starting from April can be signed in a week as the government has fixed the subsidy for the next year, Gahlaut said on Friday.
A team of Uralkali's sales officials is in India to finalise deals for over 1 million tonnes, a senior fertiliser industry official said.
Apart from Uralkali, India buys potash from Potash Corp of Saskatchewan Inc, Mosaic Co , Agrium Inc, Arab Potash Co, Israel Chemicals and Germany's K+S AG.
India has been trying secure potash at the same price China bought from global suppliers earlier this year, Gahlaut said.
Uralkali, the world's top potash producer, has agreed to sell 700,000 tonnes of potash to China at a price of $305 per tonne on a cost and freight (CFR) basis in the first half of 2014.