The Cabinet Committee on Economic Affairs chaired by the Prime Minister Shri Narendra Modi, has accorded the ex-post facto approval for implementation of Special Banking Arrangement (SBA) for ₹ 10,000 crore for payment of outstanding claims on account of fertilizer subsidy in the year 2016-17. CCEA has also approved that, in future, Department of Fertilizers would avail the SBA with the concurrence of Department of Expenditure.

Under the SBA, a total loan of ₹ 9,969 crore for settlement of outstanding subsidy bills with SBI was raised by the Government. The loan amount along with interest liability on the part of Government amounting to ₹ 80.90 crore were paid to SBI.

SBA for an amount of ₹ 10,000 crore for the year 2016-17 has already been implemented/ operationalised to overcome the liquidity problems of the fertilizer companies.

Background:

Government is making available fertilizers, namely Urea and 21 grades of P&K fertilizers to farmers at subsidized prices through fertilizer manufacturers/importers. For making funds available to the fertilizer companies against their subsidy claims, Ministry of Finance had approved SBA for an amount of ₹ 10,000 crore with Government interest liability limited to G-Sec rate. Accordingly, an SBA was worked out with SBI for an amount of ₹ 10,000 crore to meet the outstanding subsidy claims of fertilizer companies. The loan together with Government interest thereon has been repaid from BE 2017-18 within the sanctioned budget.

Special Banking Arrangement enabled government loan facility to settle outstanding fertilizer subsidy claims and address company liquidity. Cabinet approved an ex-post facto Special Banking Arrangement to raise a government loan from a public sector bank to settle outstanding fertilizer subsidy claims, with the government meeting interest liability limited to the government securities rate; the facility was operationalised to address fertilizer company liquidity and was repaid from the subsequent budgetary allocation.