India To Spend Less On Fertilizer Subsidy As World Prices Soften

(Bloomberg) --

India will cut its fertilizer subsidy in the new fiscal year from April 1 as global prices weaken and the government looks to prune its budget deficit.

The South Asian nation will slash the allocation to 1.64 trillion rupees ($19.8 billion) in 2024-25, Finance Minister Nirmala Sitharaman said in her interim budget speech in parliament Thursday. That compares with a revised subsidy of 1.89 trillion rupees for the current fiscal year.

The reduced spend will help India trim its budget deficit, but could pose challenges for the government trying to manage food inflation. India uses the subsidy to reimburse companies for selling fertilizer to farmers at below-market prices. If cultivators have to bear higher costs, they might trim the use of crop nutrients, putting the country’s food security at risk.

India’s budget deficit is projected to be 5.8% of gross domestic product in 2023-24. The government aims to curb the deficit to 5.1% in the next financial year.

Shares of Indian fertilizer producers fell on concerns that a reduction in subsidies will cut consumption of the crop nutrients. National Fertilizers Ltd. slid as much as 5.1% in Mumbai, Rashtriya Chemicals & Fertilizers Ltd. declined as much as 4.7%, while Chambal Fertilisers and Chemicals Ltd. fell 1.4%.

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