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Fertiliser ministry seeks entire subsidy in cash

June 22, 2009 18:41 IST

The fertiliser ministry has sought the entire subsidy amount for 2009-10 be paid in cash only, and said the industry may not accept bonds as the securities provided in the last fiscal are yet to be redeemed.

In a pre-Budget memorandum, the ministry has submitted to the finance ministry that the industry may not accept bonds this fiscal.

"We have said whatever is the subsidy, we should continue to get the money. And, we don't want bonds; we want cash. The industry is not in a position to accept any further bonds, as last year's bonds are still to be redeemed," fertiliser secretary Atul Chaturvedi told PTI.

He, however, did not elaborate on the value of bonds that are yet to be redeemed.

Nevertheless, the ministry's latest position seems to be in sync with the demand of the fertiliser industry that has persistently maintained that the securities are mostly trading in discount, affecting the balance sheet of companies.

Even in its memorandum to the department of fertilisers in the run-up to the Budget, the industry has not only asked for the subsidy in cash but also demanded that the companies be compensated for losses incurred on the sale of securities.

The government controls the pricing of key fertilisers and offers funds to companies, called fertiliser subsidy, to compensate them for selling key farm nutrients at the rates determined by it.

Earlier, the government had issued long-term bonds worth Rs 4,000 crore (Rs 40 billion) on December 24, 2008, and those worth Rs 10,000 crore (Rs 100 billion) and Rs 6,000 crore (Rs 60 billion) on December 10, 2008, and January 29 this year, respectively, to fertiliser firms to help meet their working capital requirements.

The government had proposed fertiliser subsidy of Rs 30,986 crore (Rs 309.86 billin) in the Budget 2008-09. After that it came out with first supplementary grants for providing additional Rs 52,000 crore (Rs 520 billion) subsidy. While Rs 38,000 crore (Rs 380 billion) was granted in cash, bonds were to be issued for Rs 14,000 crore (Rs 140 billion).

Though earlier in the last fiscal the ministry had said bonds, too, could be profitable instruments for fertiliser companies, sources in the industry maintained that the firms received bonds due to the insistence of the ministry.

Moreover, since these bonds are classified as 'Other Approved Securities', banks and insurance firms are not obliged to buy them, making them unattractive against other AAA rated corporate bonds with higher yields.

The fertiliser subsidy bill surged to a record Rs 1,17,000 crore (Rs 1,170 billion) in 2008-09 from only Rs 45,659 crore (Rs 456.59 billion) the previous fiscal, due to unprecedented rise in the prices of farm nutrients in the initial part of the last fiscal.

According to an official estimate, fertiliser companies recover less than 15 per cent of the actual cost of farm nutrients by selling at MRPs, while the rest is borne by the government through the subsidy bill.

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