Budget 2022: Government Plans 19 Billion Dollar Fertilizer Subsidy

Following approx. couple of years of protests by farmers, Prime Minister Narendra Modi declared on November 19 that the government will repeal the controversial farm laws. Farmers would have been exposed to large corporations, according to farm unions, and their livelihoods would have been ruined. Now, the Indian government is planning to set aside approximately $19 billion in the Union Budget 2022 to reimburse fertilizer businesses for selling their products to farmers at below-market pricing, as per the sources.

The finance ministry has set aside 1.4 trillion rupees ($18.8 billion) for fertiliser subsidies in the Budget expected on February 1, up from 1.3 trillion rupees in the fiscal year ending March 31. According to a report by Bloomberg Quint, no final decision has been made yet, and conversations are still underway.

Farmers are one of India’s most powerful voting blocs, and Narendra Modi’s decision to repeal the restrictions comes ahead of elections in crucial areas such as Uttar Pradesh and Punjab, which are both major agricultural producers and where Bharatiya Janata Party is hoping to bolster its support. The increased expenditure comes ahead of important local elections and as the ruling Bhartiya Janata Party tries to win back farmers after major protests against new restrictions that were later repealed. Nearly 60% of India’s 1.4 billion people rely on farming for a living, and their support is crucial in winning elections.

Despite the protests, the government increased fertiliser subsidies significantly this year after spending about Rs 80,000 crore in the February 2021 budget.

The increase in subsidy is also considered as timely, given the burden of high fertiliser prices that farmers have had to suffer as a result of fertiliser makers’ price hikes to offset the impact of increasing raw material prices over the last year.

Shares of fertiliser producers were in demand on January 18 after media reports said that the government is planning to increase the subsidy offered to farmers on the purchase of fertilisers in the upcoming Union Budget 2022-23.

In early trading on the National Stock Exchange, shares of Khaitan Chemicals, Madras Fertilizers, FACT, Rashtriya Chemicals, National Fertilizers, Chambal Fertilizers, and GSFC climbed 1-12 percent.

Despite the benchmark Nifty 50 index retracing all of its gains earlier in the day, the sector was able to maintain its advances.