The fertiliser industry agreed to participate as an intermediary and facilitator for delivering valuable subsidy to the common farmer. The government had promised to reimburse the subsidy-claims within 15 days. However, now after the fertiliser companies have sold large volumes of fertilisers at reduced prices, the government has failed to fulfill its commitments and have not reimbursed the subsidy as promised by MNFS&R vide their notification dated June 25, 2016. Later, MNFS&R issued amendment in their notification in which unnecessarily lengthy and complex verification procedure has been adopted. Due to the excessive delays in the payment of subsidy claims; the fertiliser industry is now facing severe financial challenges in the form of cash flow drought, whereby the manufacturers, importers and other stakeholders have already begun expressing their frustration and inability to continue their contribution in this major incentive programme. This may lead to serious problems with regard to availability of fertilisers in the country.

The last payment of fertiliser subsidy claims was made in November 2016 to settle the claims for the period of July–November, 2016. Although the Ministry of National Food-Security & Research has already reconciled Rs21 billion subsidy, till date a cumulative amount of almost Rs11.3 billion has been released so far. All the remaining cases of payments are under verification process and remain unpaid till date. These procedural delays have impacted the fertiliser industry to serious cash-flow problems. It is estimated that almost Rs15 billion of fertiliser companies is stuck due to pending claims which is hampering the working capital flow of the companies.

The fertiliser companies participated in the Kissan Package announced by the prime minister to help agricultural progress. However, they have ended up under a major financial burden and ultimately, they will be forced to withdraw from the subsidy programme. The rising prices of fertilisers in the international market had also made it impossible for many domestic companies to continue importing more DAP fertilisers for the coming season due to capping of the prices, which have just been removed by the Punjab government. However, in current cash constraints scenario, situation may lead towards a shortage of fertilisers and an agricultural crisis in the country.

The long delays and the unnecessary complexity of verification process reflect the poor capacity of the relevant ministry and incompetence of the federal institutions and non-cooperative attitude of three provincial departments, other than Punjab. It is learned that sensing the difficulty of industry and realizing the impact of such inefficiency which can lead to low agricultural yields and an economic crisis in the country; the Punjab government has recently requested the federal secretary of Food Security to remove the complexities of the verification process which were never part of the initially agreed mechanism. It is ironical to state that Sindh, Balochistan and KPK refuse to be part of subsidy scheme, while their farmers have benefitted through sale of cheaper fertiliser at the cost of industry. This appears to rather selfish just for the sake of political confrontation with the federation.

The key stakeholders of the fertiliser industry have also requested the finance minister to officially intervene and resolve this looming crisis. If this deadlock continues, the imports of DAP will be severely hampered leading to shortage for rabbi crops and the prices of fertilisers in Pakistan may also rise. It is strange that currently subsidy of Rs300 per bag is less than GST collected by government, hence fleecing the farmers. The impending crisis has put the government’s credibility at stake because the ministry has not been able to fulfill its commitments to the fertiliser industry. The national leadership should take urgent notice of the situation and provide relief to the fertiliser industry before some serious economic damage occurs. It is important to note that as the National Budget for 2017-2018 is being prepared, the government has still not paid some long outstanding dues against subsidy of 2015 subsidy scheme.

Fertiliser prices are deregulated by virtue of existing fertiliser policy, any effort to regulate the domestic prices of fertilisers and by capping the prices will be counter-productive and can lead to demand supply imbalance. The government may also need to devise a new subsidy scheme where subsidy in future can be given directly to the farmers instead of passing it on through the manufacturers, who are at the verge of financial collapse. However, the best option is reducing GST and GIDC on feed stock gas and GST on fertilisers to keep the prices affordable and avoid refund cycle, as well.

Experts have suggested that in order to expedite the subsidy payments; electronically generated copies of sales tax invoices by the FBR may be accepted by the ministry for disbursement of claims in time. The Indemnity Bonds submitted by the companies may be also trusted and full payments be released and minor discrepancies can be settled at the end of scheme by verifying through audited financial statements of the companies. A subsidy package with all the good intentions chalked out by the government to help the farmers which are the main vote-bank seems to be turning into a huge liability and earning bad reputation for the government may not augur well in the political developments. All stakeholders need to move fast and resolve the issues before it becomes impossible to change path leading into a major crisis.