The increase in prices of raw materials and imported fertilisers is likely to raise the subsidy bill of government by Rs 20,000-25,000 crore. “..the overall subsidy budget is likely to increase by 12-15% from initial estimates of Rs 1.71 lakh crore for fiscal 2027,” said Nitin Bansal, Associate Director, Crisil Ratings.
Also Read: West Asia crisis: Shivraj Singh Chouhan sets up cell to track seed, fertiliser availability
“Supply chain disruptions stemming from the ongoing conflict in the Middle East can potentially impact annual domestic production of both complex fertilisers and urea by 10-15%,” the report said.
Urea accounts for 45% of fertiliser consumption in India, complex fertilisers -(diammonium phosphate, or DAP, and nitrogen, phosphorus and potassium, or NPK- one-third, and single super phosphate (SSP) and muriate of potash (MOP) for the rest.
Fertiliser sector dependence on imports remains high, with around 20% of urea and one-third of complex fertilisers, primarily DAP, are imported.
Furthermore, the key raw materials for urea such as natural gas, which comprises around 80% of the raw material cost and complex fertilisers (ammonia and phosphoric acid) are largely imported due to limited domestic reserves. For both urea and DAP imports, the Middle East remains an important region, accounting for around 40% of imports in the first nine months of fiscal.
For domestic fertiliser production, the dependence on the Middle East is even higher, with around 60-65% of liquefied natural gas (LNG) and 75-80% of ammonia imports coming from the region.
Also Read: India urea plants at half capacity as West Asia tensions choke gas supplies
“The ongoing issues in the Middle East could disrupt the fertiliser supply chain at a crucial time for the kharif season,” said Says Anand Kulkarni, Director, Crisil Ratings, adding that disruption in LNG and ammonia supplies continuing for about three months could cut domestic urea and complex fertiliser production by 10-15%.
The impact on production will be cushioned to some extent by the recent government directive for allocation of 70% gas to urea manufacturers and inventory of around three months, he added.
“The expected imports from alternative sources, will mitigate the risk of immediate supply shortages,” he said.
The industry will require additional subsidy support from the government to mitigate the impact, the report added.