Government is likely to exceed its fertiliser subsidy bill by $4.2 billion for this financial year, informed three sources with direct knowledge of the matter adding that for this it could tap state banks to fund the extra spending.
PM Narendra Modi's government had budgeted 700.8 billion rupees for fertiliser subsidies for the year 2018-19 ending on 31st March. But sources said almost half of the money was utilized to clear up dues from the previous year.
Sources further said that an increase in fertilizer prices abroad and a drop in the rupee also made imported fertilisers more costly, raising the total subsidy requirement for the year to 1 trillion rupees, which is the highest so far.
Two of the sources also said since the Finance Ministry denied extra money to the Chemicals and fertilisers Ministry for the current year, the government is in view of a ‘special banking arrangement’ for the local fertiliser companies.
Such a step would be in keeping with other latest financially-draining measure adopted by Modi government to win the support of small business owners, farmers and the less wealthy after being defeated in recent state polls and with a general election due in few months.
Bank route might also help the country meet its decade-low headline fiscal deficit target of 3.3% of the GDP.
The Comptroller and Auditor General of India that has the power to review state and national budgets criticized the Cabinet for increasingly resorting to ‘off-budget financing here’ - like asking banks to finance subsidy gaps - and told such arrangements had ‘fiscal implications’.
A Finance Ministry spokesman declined to comment. The fertiliser ministry also did not instantly respond to an email seeking comment. Earlier also India has rolled over subsidy requirements by using special arrangements with banks.
A senior official with a co-operative fertiliser company said, "Considering poor tax collections, we don't think government will pay the whole subsidy this year. Like previous year, it will be rolled over to the next year."
It must be noted that the monthly goods and services tax collection have been averaging below expectation at 967.8 billion rupees since April, as compared with an average target of 1.2 trillion rupees.
The Fertiliser Ministry, for the next fiscal year has asked for 1 trillion in subsidies from the finance ministry, who will present an interim budget for next fiscal year on 1st February.
