Govt Extends Special Subsidy on DAP

The special subsidy of ₹3,500 per tonne on Di-Ammonium Phosphate (DAP), originally set to end on December 31, 2024, has been extended until December 31, 2025.

• To control farmgate prices of DAP, India’s second most-consumed fertiliser, despite the recent depreciation of the rupee.

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Import Cost of DAP

• Fiscal Cost: The additional ₹3,500 per tonne subsidy will cost the government approximately ₹6,475 crore.
• Challenges Due to Falling Rupee: The rupee’s depreciation from ₹83.8/USD to ₹85.7/USD has increased the landed cost of DAP imports.
  • Fertiliser companies’ gross realisation of ₹52,411 per tonne (MRP + subsidies) is still below the landed cost of ₹54,160.
• Compensation for Imports: In September 2024, the government approved full compensation for DAP imports above $559.71 per tonne for shipments arriving between September 1, 2024, and March 31, 2025.
• Exchange rate considered for compensation: ₹83.23/USD (now outdated due to further depreciation).

Industry Concerns

• Fertiliser Stock Levels and Supply Concern: Current Stock Levels (as of mid-December 2024) of DAP is  9.2 lakh tonnes (down from 13 lakh tonnes year-on-year).
• Complex fertilisers stock decline  : 23.7 lakh tonnes (down from 32.3 lakh tonnes year-on-year).
• Industry demand: Companies suggest the need for either increased subsidies to match rising costs, or permission to raise the MRP of DAP by at least ₹1,500 per tonne.

Upcoming Challenges

• Need of Import: Adequate imports of both finished fertilisers and raw materials are required to ensure sufficient availability for the kharif season (June-July 2025).
  • Without imports, there could be supply disruptions, as stocks are already below year-ago levels.
• Seasonal Impact: The current consumption season (rabi crop) is over, so any MRP increase would have minimal immediate impact.
  • The price rise will impact the input cost in next kharif season.

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Way Forward

• Increase Subsidies Temporarily: To offset the rising costs due to rupee depreciation, the government can provide additional short-term subsidies to ensure affordability for farmers.
• Encourage Domestic Production: Promote domestic manufacturing of DAP and intermediates to reduce dependency on imports.
• Exchange Rate Hedging: Fertiliser companies could hedge against currency fluctuations to mitigate risks.
• Alternative Fertilisers: Promote balanced fertilisation using alternative and indigenous fertilisers like bio-fertilisers to reduce reliance on DAP.
• Strengthen Stock Management: Maintain higher buffer stocks by ensuring timely imports of both fertilisers and raw materials.
• Technology & R&D: Invest in research for cost-effective fertiliser formulations and sustainable farming practices. For Example , introducing Nano-DAP at affordable prices.