Subsidy bill set to spike due to fertliser payouts, cooking gas payouts

NEW DELHI: The Centre is staring at a massive surge in its subsidy bill during the current fiscal year as fertiliser payouts may reach Rs 3.8 lakh crore - more than twice the budgeted level - against govt's total budgeted subsidy bill of Rs 4.1 lakh crore for 2026-27.

For cooking gas too, the budgeted subsidy of Rs 12,085 crore for this year is seen to be inadequate as the Centre paid Rs 26,000 crore to oil retailers for last year. Currently, the petroleum players are losing Rs 700 on every cooking gas cylinder sold by them to households. And, the Centre has taken an over Rs 1 lakh crore hit on an annual basis due to the excise duty cuts earlier in the year.

Latest numbers shared by the fertiliser department suggest that the subsidy bill for urea and other fertiliser could touch Rs 3.8 lakh crore, if the current price levels persist compared with the budgeted Rs 1.7 lakh crore for 2026-27. The department informed the informal group of ministers on Wednesday that the price of urea has increased by over 120%, following the war. Similarly, the global price of Diammonium Phosphate (DAP) has shot up by 38%, sulphur by 87% and ammonia by 84%. On top of that, there is an additional cost of 6% due to rupee's depreciation against the dollar, people aware of the discussion told TOI.

India remains heavily import-dependent for key fertilisers such as DAP, potash and NPK. To meet the annual urea consumption of around 40 million tonnes (MTs), India imports around 8-10 MTs. In the case of DAP, about 60% domestic demand is met from imports, while India is completely dependent on imports as far as potash is concerned.

Last year, the fertiliser subsidy bill added up to around Rs 2.2 lakh crore, which was higher than the revised estimate. In 2022-23, the subsidy outgo for fertiliser hit a record Rs 2.5 lakh crore as supplies through Red Sea was impacted.

Food subsidy, budgeted at around Rs 2.3 lakh crore, may see pressure as Food Corporation of India is currently grappling with excess stock of wheat and rice will have a higher carrying cost.

By all assessments, it will take about two to three months for ship movement to normalise after the Strait of Hormuz opens and oil and gas supplies from the region will take a longer time to be fully restored.

For the Centre, which has budgeted for fiscal deficit of 4.3% of GDP, the situation remains challenging on the tax front too, if the tension persists. So far, GST collections have held firm and an early assessment on direct tax will be available once the first instalment of advance tax is paid by June 15.

A senior official said govt has so far managed to ensure supplies, but the constraints remain and will reflect in costs in the coming months in case the war persists. Higher retail prices may hit consumption, especially in segments that are non-essential. Besides, companies too are tightening their belt in certain segments, such as travel, to keep costs under check.
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