Fertiliser industry expectations from budget 2024; Stocks to watch out pre-budget

Setting the Stage for Fiscal Exploration

As the global economic landscape undergoes transformative shifts, India emerges at the forefront with the International Monetary Fund (IMF) revising its growth forecast to an encouraging 6.3% for FY24. Projections place India on track to surpass Japan and Germany, becoming the world’s third-largest economy, boasting a targeted GDP of USD 5 trillion by 2027.

Subsidy Cuts and Environmental Focus

In the Union Budget 2023-24, the government revealed a significant restructuring of expenditure priorities, notably evidenced by substantial cuts in subsidy allocations. A 31% reduction in the food subsidy, reaching Rs 1,97,350 crore, and a noteworthy decrease of Rs 50,121 crore in fertilizer subsidies, now stands at Rs 1,75,099 crore, outlined a strategic shift.

While nutrient-based and urea subsidies saw a 22% reduction, the LPG subsidy for the economically disadvantaged faced a drastic 75% cut, falling to Rs 2,257 crore. Despite these reductions, the budget allocated funds to promote sustainable agricultural practices, introducing the ambitious PM-PRANAM scheme and the GOBARdhan initiative, aiming to reduce chemical fertiliser use.

Challenges on the Horizon

As we approach the 2024 budget, challenges loom large, particularly in the context of subsidy reductions. Subsidies, accounting for about 7% of the budgetary outlay in FY 2023-24, are set to decrease from the 8% recorded in FY 2022-23. While this reduction aids in fiscal deficit management, it potentially exerts pressure on rural demand, especially amidst challenges like lower agricultural output.

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Anticipating Budget 2024

Looking ahead to the 2024 budget, the government is poised to address current challenges faced by the fertiliser sector. To streamline production for the upcoming farming season, an earmarked allocation of about 4 trillion rupees (USD 48 billion) for food and fertilizer subsidies is on the horizon, as indicated by government sources.

Minister of Chemicals and Fertilisers Mansukh Mandaviya anticipates the fertiliser subsidy to remain within the range of Rs 1,70,000-1,80,000 crore. This represents a strategic response to the fall in global prices and decreased urea imports, exacerbated by the ongoing Red Sea crisis, leading to heightened freight charges.

As Budget 2024 draws closer, the fertiliser industry harbours several key expectations:

• Continued Affordability: While maintaining fiscal discipline, the industry hopes for measures that ensure fertiliser affordability for small and marginal farmers. This could involve targeted subsidy schemes or direct income support initiatives.
• Boosting Domestic Production: Encouragement for domestic fertilizer production through tax breaks or infrastructure investments would bolster self-sufficiency and reduce dependence on volatile global markets.
• Green Initiatives: Increased allocation for organic and bio-fertilizer programs aligned with PM-PRANAM and GOBARdhan would accelerate the transition towards sustainable agriculture.
• Streamlining Logistics: Measures to address the Red Sea crisis and other logistical bottlenecks impacting fertilizer imports would further stabilise the supply chain.

Resilience in the Face of Challenges 

Despite the subsidy cuts, the fertiliser industry demonstrated remarkable resilience in 2023. Leading players like The Fertilisers and Chemicals Travancore Ltd. and Gujarat State Fertilizers & Chemicals Ltd delivered stellar returns exceeding 80%, as showcased in the table below. This indicates not only the sector’s adaptability but also its potential for profitability under prudent financial management.

To get the Budget 2024 live update, click here.

Conclusion

As we traverse the complex terrain of fiscal planning, the fertiliser sector emerges as a critical player in India’s economic narrative. The 2023 budget, with its subsidy cuts and environmental thrust, sets the stage for a nuanced approach in the upcoming 2024 budget. Investors keen on the fertiliser sector would be wise to keep a watchful eye on stocks with proven returns, as the government navigates the delicate balance between fiscal prudence and sectoral growth.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.