Fertiliser subsidy may exceed Revised Estimates by Rs 10K cr; fiscal deficit to remain close to 6.9% in FY22

The government's fertiliser subsidy bill in the current fiscal year may go up by about Rs 10,000 crore due to the Russia-Ukraine war, but higher tax revenues will help keep fiscal deficit close to the estimated 6.9 per cent level, an official said.

The official further said the oil prices are expected to cool in the next 2-3 months on higher production from the US and OPEC member countries.

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The Revised Estimates (RE) had pegged the fertiliser subsidy at over Rs 1.40 lakh crore in current fiscal year, while the Budget Estimate (BE) for next fiscal year is estimated at over Rs 1.05 lakh crore.

"We expect oil prices to cool in next 2-3 months. The rising oil prices would not alter the budget math of the government much in the current fiscal except for fertiliser subsidy which is likely to go up by about Rs 10,000 crore," the official said.

The official further said that since farmers need to stock up fertilisers before the beginning of the sowing season, import of potash -- a key component in fertiliser manufacturing-- cannot wait for international prices to cool.

Also, rise in prices of natural gas, a key raw material for the manufacturing of urea and comprising nearly 70 per cent of the total cost of producing urea, in the global market would lead to rise in domestic prices of urea.

International crude oil prices shot up to 14-year high of USD 140 per barrel early last week before retracting to near USD 112 on Friday. But even this rate is 45 per cent higher than the USD 80-87 range of January when most of the Budget 2022-23 would have been prepared.

The official said that even at this elevated level of spending, the fiscal deficit would remain close to the 6.9 per cent level in the current fiscal year as pegged in the revised estimates.

"India's fiscal deficit would be close to 6.9 per cent as given in the revised estimate as higher tax revenues will offset the gap in the non-tax revenues and higher fertiliser subsidy outgo. As of now, we will remain close to the numbers given in the RE for this year and in the Budget Estimates for next fiscal," the official added.

In the RE for the current fiscal year ending March 31, the fiscal deficit has been revised a tad higher at 6.9 per cent of GDP, from 6.8 per cent estimated earlier. The deficit is projected to come down to 6.4 per cent of GDP in the next fiscal year.