Fertilizer subsidy may exceed RE by Rs 10K crore; budget deficit remains close to 6.9% in FY22

The revised estimates (RE) had set the fertilizer subsidy at over Rs 1.40 lakh crore in the current fiscal year.

The government subsidy for fertilizer in the current fiscal year may increase by about Rs 10,000 crore due to the war between Russia and Ukraine, but higher tax revenues will help keep the budget deficit close to the estimated level of 6.9 percent, it said an officer.

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

The revised estimates (RE) had set the fertilizer subsidy at more than Rs 1.40 lakh crore in the current fiscal year while the Budget Estimate (BE) for the next fiscal year is estimated at more than Rs 1.05 lakh crore .

“We expect oil prices to cool in the next 2-3 months. Rising oil prices would not change the government’s budget calculation much in the current fiscal year, except for fertilizer subsidy which is likely to increase by about Rs 10,000 crore” the official said.

The official went on to say that, as farmers have to stock up on fertilizers before the start of the sowing season, imports of potash – an important part of fertilizer production – can’t wait for international prices to fall.

Also, an increase in the prices of natural gas, an important raw material for the production of urea and which accounts for almost 70 percent of the total production costs of urea, would lead to an increase in domestic prices of urea on the world market.

International crude oil prices rocketed to a 14-year high of $140 a barrel early last week, before falling to nearly $112 on Friday. But even this percentage is 45 percent higher than the $80-87 range from January, when most of the 2022-23 budget would have been drafted.

The official said that even at this high level of spending, the budget deficit in the current fiscal year would remain close to the level of 6.9 percent, as set in the revised estimates.

“India’s budget deficit would be close to 6.9 percent, as indicated in the revised estimate, as higher tax revenues will make up for the non-tax revenue gap and higher fertilizer subsidies. From now on, we will stay close to the numbers given in the RE for this year and in the budget estimates for the next fiscal year,” the official added.

In the RE for the current fiscal year ending March 31, the budget deficit is revised slightly higher at 6.9 percent of GDP, from 6.8 percent previously estimated. The deficit is expected to fall to 6.4 percent of GDP in the coming fiscal year.

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