Budget May Back Off Fertiliser Subsidy Reform

New Delhi: Investors looking for the Union Budget for 2015-16 on Saturday to tackle fertiliser subsidies are likely to be disappointed, because sources say the government plans to largely maintain the current regime.

The government was widely expected to deregulate urea prices after freeing up diesel following a fall in crude prices, but two government sources told Reuters major changes were unlikely.

The fertiliser subsidy bill will nevertheless be cut by 4 per cent to around Rs 70,000 crore ($11 billion) for the fiscal year starting April 1, said the sources, who have knowledge of the matter and who declined to be named.

India is the world's third largest producer of fertiliser after the United States and China. The government spends nearly Rs 36,000 crore a year on subsidising urea fertiliser prices.

Deregulation of urea prices would have helped local producers such as Chambal Fertilisers and Chemicals and Rashtriya Chemicals and Fertilizers Ltd.

But one of the sources said there was no plan to raise prices, although a roadmap for reforms in the subsidy structure could be unveiled after the budget. He did not specify the timeline for this.

The policy of keeping urea prices below cost of production over the past decade has quadrupled fertiliser subsidies. Previous governments shied away from any hikes fearing a blacklash from the powerful farm lobby.

"We want cash transfer of subsidies to our bank accounts and until that happens all talks are rhetoric with no real gain to farmers," said P Chengal Reddy, secretary general of Consortium of Indian Farmers Association, a farmers' lobby group.

Last month, a government panel had suggested fertiliser subsidies should be given to farmers in cash and prices be market linked.

The government is likely to slash its food and fuel subsidy bill by about $8 billion in the Budget, but the cut is not as radical as free market champions had hoped for.