Mumbai, February 9
The UPA government plans to cut its fertilizer subsidy bill by at least 15 per cent for the fiscal year 2013-14, four sources told Reuters, a move that takes advantage of a fall in international prices to help narrow the country's fiscal deficit.

Fertilizers, after oil and food, account for the third-biggest share of India's total subsidy bill, which is expected to rise to 2.4 percent of gross domestic product (GDP) in fiscal 2012/13.

The government had estimated the fertilizer subsidy at Rs 609.7 billion for the fiscal year ending next month, but it is likely to be much higher than the target.

Based on the estimated subsidy level for 2012/13, a 15% cut would save the government nearly Rs 91.5 billion. Calculating from the projected fiscal deficit for this year, this would narrow the deficit by as much as 0.1-0.2 percentage point.

Finance Minister P. Chidambaram has staked his reputation on lowering the deficit to 5.3% of GDP to improve the investment climate following ratings agency threats to downgrade India's sovereign debt to junk if action was not taken.

Reuters reported exclusively last week that, after small steps to reduce fuel subsidies, Chidambaram is now putting welfare, defence and road projects on the chopping block in a last-ditch attempt to hit his deficit target by next month.

A senior official at the fertilizer ministry with direct knowledge of the plan said the subsidy bill would be reduced by at least 15 percent or more in the next financial year, though the actual cut will depend on the views of the agriculture and finance ministries.

"Since international prices have fallen, obviously, (the) subsidy will go down," Junior Fertilizer Minister Srikant Jena told Reuters separately, adding that a final decision on the extent of the cut was yet to be taken.

The move is unlikely to trigger opposition from farmers as the government plans to leave unchanged the subsidy for urea, the most-used fertilizer, an official with a Mumbai-based state-run fertilizer company said.

A senior official with the country's leading cooperative fertilizer company said most of the subsidy reduction would come from potash and phosphate-based fertilizers as import prices have gone down.

India imports all its potash and about 90 percent of its phosphate requirement. The country imported muriate of potash (MoP) at an average price of US $490 a tonne in 2011/12, while prices of diammonium phosphate (DAP) hovered around $580 per tonne.

This week, India agreed to buy MoP at $427 a tonne for 2013/14 while global DAP prices have fallen to about $525 a tonne, giving the government much-needed leverage to cut subsidies without raising retail prices and angering farmers.

Shares of the top North American potash sellers, Potash Corp of Saskatchewan Inc, Mosaic and Agrium Inc were mixed in early trading.

"Indian importers, such as IPL (India Potash Ltd), would likely only agree to new potash contracts once it had an idea on the government's views on 2013-14 subsidy levels, so the pricing/volume agreed to would likely have already been factoring in where the subsidy levels are going," said analyst Joel Jackson of BMO Capital Markets. — Reuters

New Delhi/Mumbai, Feb 9
India's slowest growth in a decade could be worse than anticipated, as preliminary data released on Thursday showed the economy set to have grown 5% in the fiscal year ending next month, underscoring the urgent need for reforms to boost growth.

The RBI's forecast for 2012/13 had been 5.5% growth, while Finance Minister P. Chidambaram had projected growth of 5.7%, down from 6.2% in 2011-12, but both appear to have been overoptimisic.

The preliminary data dimmed hopes for a mild recovery in economic activity in the second half of the financial year, which ends in March, with the government now projecting economic growth of 4.6% between October 2012 and March 2013, compared with 5.4% in the first half of the fiscal year.

"It’s disappointing," C. Rangarajan, chairman of the Prime Minister's Economic Advisory Council, said of the figures. "My own estimate is when the full-year data becomes available, it can be revised upward." He did not give reasons for his optimism.

The government's estimate for the fiscal year 2012-13 pegged farm output growth at 1.8%, while the manufacturing sector was expected to show growth of 1.9%. The services sector, which makes up more than half of India's GDP, is forecast to slow down to 6.6% from 8.2% a year ago.

"These all look a little low to us, but it is the service sector estimate, where high frequency information is most lacking, which is the biggest surprise," Credit Suisse analyst Robert Prior-Wandesforde said.

The figures will pile pressure on Prime Minister Manmohan Singh's Congress-led government to unveil a growth-oriented budget on February 28 for the next fiscal year, beginning in April.

FISCAL CHALLENGES: But faced with an arduous task of trimming a swollen fiscal deficit that has put India's investment-grade credit rating in peril, Singh can ill-afford to boost government spending to prop up growth ahead of the general elections due by May 2014.

Chidambaram has already ordered spending cuts in welfare, defence and road projects for this financial year.

According to the GDP estimate, growth in government expenditure is on track to moderate to about 4% in 2012/13 from 8.6% a year ago.

Economic growth likely eased further to around 4.8 percent in the quarter ending in December, mainly as a result of deep cuts in government spending, a senior official at the statistics ministry told Reuters. The GDP data for the December quarter is due on February 28.

Critics warn that at a time of low growth, lower spending risks deepening the slowdown without helping the deficit-to-GDP ratio.

But others argue the government has little option but to tighten its belts. A dropoff in investment, hurting growth, is blamed in part on high public spending that is funded through a heavy market borrowing and crowding out the private sector.

India’s business leaders and foreign investors are pushing Singh to create better conditions for economic growth by fast-tracking stalled tax reforms and making it easier for firms to acquire land for new projects.

STRUCTURAL WOES, SLOWING CONSUMPTION: Structural bottlenecks have restricted India's growth potential to around 7%, according to the central bank, ruining the aspirations India has for the near double-digit expansion needed to provide jobs for a burgeoning population.

Road, power and mining projects worth billions of dollars have been held up for years because of delays in getting multiple regulatory clearances.

Growth in private consumption is forecast to moderate to 4% from 8%. This could help keep inflation in check and encourage the Reserve Bank of India to cut interest rates further to help spur investments and consumer demand. — Reuters

BRIEFLY

Gold prices end flat
Mumbai: Gold prices ended flat at Rs 31,050 per 10 gms in the national capital on Saturday on lack of buying at prevailing higher levels, while silver recovered by Rs 50 to Rs 58,650 per kg on some offtake by industrial units. Traders said lack of buying support from retailers at prevailing higher levels mainly kept gold prices steady while some offtake by industrial units helped silver to recover. On the domestic front, gold of 99.9 and 99.5 per cent purity held steady at Rs 31,050 and Rs 30,850 per 10 gms. It had gained Rs 200 in last two sessions. On the other hand, silver ready recovered by Rs 50 to Rs 58,650 per kg, but weekly-based delivery lost Rs 120 at Rs 58,160 per kg on lack of speculators support.