West Asia turmoil to swell fertiliser subsidy by up to Rs 25,000 Crore, hit output: Crisil Ratings
The rise in prices of raw materials and imported fertilizers is likely to increase the government’s subsidy bill by Rs 20,000-25,000 billion. “..the overall subsidy budget is likely to increase by 12-15% as per initial estimates of Rs 1.71 lakh crore for fiscal 2027,” said Nitin Bansal, Deputy Director, Crisil Ratings.
Also Read: West Asia crisis: Shivraj Singh Chouhan sets up cell to track seed, fertilizer availability
“Supply chain disruptions resulting from ongoing conflicts in the Middle East could potentially impact annual domestic production of both complex fertilizers and urea by 10-15%,” the report said.
Of the fertilizer consumption in India, urea accounts for 45%, complex fertilizers (diammonium phosphate or DAP and nitrogen, phosphorus and potassium or NPK) account for one-third and single super phosphate (SSP) and muriate of potash (MOP) account for the remaining.
The fertilizer industry’s dependence on imports remains high; Approximately 20% of urea and one third of complex fertilizers, especially DAP, are imported.
Additionally, the main raw materials of urea, such as natural gas, which accounts for approximately 80% of the raw material cost, and complex fertilizers (ammonia and phosphoric acid) are largely imported due to limited domestic reserves. In terms of imports of both urea and DAP, the Middle East remains a key region, accounting for approximately 40% of imports in the first nine months of the financial year.
The dependence on the Middle East for domestic fertilizer production is even higher; Approximately 60-65% of liquefied natural gas (LNG) and 75-80% of ammonia imports come from the region.
Also Read: Indian urea plants at half capacity as tensions in West Asia choke gas supplies
“Ongoing issues in the Middle East may disrupt the fertilizer supply chain at a crucial time for the kharif season,” said Anand Kulkarni, Director, Crisil Ratings, adding that disruption in LNG and ammonia supply, which persists for about three months, could reduce domestic production of urea and complex fertilizers by 10-15%.
He added that the impact on production will be mitigated to some extent thanks to the recent government directive of allocating 70% of gas to urea producers and around three months of inventory.
“Expected imports from alternative sources will reduce the risk of immediate supply shortages,” he said.
The report also stated that the sector will need additional subsidy support from the government to reduce the impact.
