Budget 2019 positive Agri sector

By K Ravichandran

Subsidy provided for the fertilizer sector is Rs 79996 Cr for 2019-20 (BE), higher by around Rs 9910 cr as compared to the level in 2018-19 (RE). Subsidy allocation for indigenous urea has been hiked, while for imports it has been marginally increased, which will be a positive for new urea projects. As regards, P&K fertilisers, subsidy allocation for domestic production has been mostly kept unchanged, while for imports, it has been increased by 12%.

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Overall, ICRA believes there could be a shortfall of around Rs 25000 Cr, which is a marginal reduction from the carried forward amount from 2018-19. The industry players have repeatedly been complaining on the under a provision of subsidy and significant delays in the payment of subsidy especially in the second half of fiscal years. In view of the under budgeting of subsidy, liquidity profile of the industry will continue to be weak with spikes in short term borrowings in the second half of the year, and higher interest costs on the same. P&K fertiliser manufacturers will face some relief on margins, as the raw material prices have eased and Rupee has appreciated, giving them some headroom to face the challenges arising from weak monsoons in the current fiscal. That apart, several measures initiated by the Govt to revive the agricultural economy such as PMGSY, MGNREGA,PMMSY and higher agricultural credit, will help fertilizers companies in the medium term through higher demand. Govt also emphasized “Zero Budget Farming”, which is however unlikely to be a success given the challenges on implementation on a pan India basis.

The author is Sr. VP- Group Head at Corporate Ratings

 

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