Budget 2020-21: The downward revision in the budgetary allocation for the fertiliser subsidy for FY2020-21 (BE) to Rs 71,309 crore, as against the revised estimate of `79,998 crore for FY2019-20, is a major negative for the fertiliser industry. The issue of inadequate subsidy provisioning and resulting subsidy backlog impacting the liquidity position of the industry has been highlighted by the industry repeatedly. Additionally, two new urea capacities under the New Urea Investment Policy-2012 (NIP-2012) are also expected to start production, leading to an increase in the urea subsidy requirement.
ICRA expects the credit profile of the industry to face headwinds in the upcoming fiscal due to low subsidy provision – the annual subsidy requirement stands at around Rs 1.1-1.2 trn. In such a scenario, urea players are expected to witness elevated working capital borrowings and worsening of the working capital cycle. While there have also been announcements on organic farming and there’s a focus on balanced nutrients, implementation would be a challenge.
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On the agricultural front, the government has continued its focus on augmenting farmer income through various steps. Increased allocation across the schemes to drive irrigation facilities, improve agricultural markets, augment the allied sectors supporting income, setting-up of FPOs, crop insurance scheme and income supplementation scheme is a major positive. With these steps, ICRA expects a positive rub-off effect on fertiliser offtake. However, subsidy reduction remains a major negative takeaway for the fertiliser sector.