India Secures Fertilizer Stocks for Kharif, But LNG Costs Threaten Subsidy Bill

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AuthorAkshat Lakshkar|Published at:
India Secures Fertilizer Stocks for Kharif, But LNG Costs Threaten Subsidy Bill
Overview

India assures sufficient fertilizer stocks for the upcoming Kharif season, exceeding last year's levels. However, reliance on costly spot market LNG to maintain supply amid global price surges threatens to inflate the government's fertilizer subsidy bill significantly. This procurement strategy impacts budget projections, despite efforts to diversify sourcing and maintain regulated prices for farmers.

Ample Kharif Stockpile

The country's overall fertilizer requirement for the upcoming Kharif season is estimated at 390 lakh tonnes, a significant increase from the 361 lakh tonnes utilized last year. Proactive stock-building efforts have resulted in current fertilizer reserves standing at 180 lakh tonnes, considerably higher than the 147 lakh tonnes available at the same period in the previous year.

Rising LNG Costs Fuel Subsidy Fears

Natural gas supply to fertilizer units, which had dipped to 60% amid the West Asia war, has now recovered to 75-80%. This recovery is primarily due to additional Liquefied Natural Gas (LNG) procurement from the spot market. These spot purchases are occurring at significantly higher prices, with recent LNG bought at around $19.5 per million British thermal units (mBtu), up nearly 70% from $11-12 mBtu before the conflict began. This strategy could inflate the government's fertilizer subsidy bill.

Budgetary Strain Looms

As per revised estimates for 2025-26, the fertilizer subsidy is pegged at ₹1.86 lakh crore, up from the initial budget estimate of ₹1.68 lakh crore. The government recently sought parliamentary approval for an additional ₹19,230 crore for fertilizer subsidy in the current fiscal year. The final outgo could escalate further in coming years, influenced by the ongoing geopolitical situation and increased input costs, including LNG, ammonia, and sulphur.

Domestic Production Recovery

Domestic urea production experienced an initial dip of 30,000 to 35,000 tonnes per day due to changes in gas allocation priorities. However, recovery efforts are underway. With additional LNG from the spot market, urea production has seen an increase of 12,000–15,000 tonnes per day. Currently, 27 plants are receiving natural gas, with others resuming operations after maintenance.

Diversifying Sourcing Strategies

The government is actively diversifying fertilizer sourcing beyond traditional West Asian suppliers, who account for 20-30% of urea and DAP imports. A global tender for 13.07 lakh tonnes of urea has been floated, and long-term supply agreements are being secured with countries like Saudi Arabia and Oman. Efforts are also underway to source from Russia, Morocco, Australia, and other nations.

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