UPDATE 1-India cuts potash subsidy by nearly a fifth, to hit imports
* Subsidy cut to keep local price elevated, reduce demand
* Uralkali reps in India now to finalise 1 mln tonnes in deals
* India to import 3.5 million tonnes potash in 2014/15 (Adds quotes, details)
MUMBAI, March 28 (Reuters) - India has cut potash subsidy by nearly a fifth to 9,400 rupees ($160) per tonne for the year starting April in an effort to contain a ballooning fiscal deficit, a government source and an industry official told Reuters on Friday.
A smaller subsidy would keep retail potash prices elevated despite a drop in overseas prices, dashing hopes for a recovery in demand in one of the world's top importers of the fertiliser. Global miners have been banking on Indian imports to help counter a slump in prices.
"The (federal) Cabinet on Thursday approved reduction in subsidy to 9,400 rupees," said a government official, who declined to be identified.
India relies on overseas supplies to meet its entire potash demand. It has accounted for about a tenth of global shipments over the past five years, but its share has been slipping as local prices rise due to subsidy cuts and a weaker rupee.
Reuters exclusively reported last month that India will cut the potash subsidy by nearly a fifth.
Retail potash prices in India have doubled since 2011 to 17,000 rupees a tonne as India cut subsidies in the last two years - including a 21.5 percent reduction in 2013/14 - and due to a weak currency.
"Since the government can't reduce subsidy for urea, it chose potash. Now fertiliser companies are not in position to pass on the drop in global prices to farmers," said an official with a private fertiliser company based in Mumbai.
Nitrogenous fertiliser urea is the most used and politically sensitive fertiliser in the country.
Global potash prices have fallen more than 20 percent to around $310 per tonne since Russia's Uralkali, broke away from trading venture Belarusian Potash Company (BPC) in July.
Higher Indian purchases would allow potash prices to rebound, but now that seems unlikely, the fertiliser company official said.
India's potash imports would remain largely steady around 3.5 million tonnes in 2014/15 due to the subsidy cut, P.S. Gahlaut, managing director of Indian Potash Limited, the country's biggest importer, said this month.
Potash imports deals for 2014/15 year starting from April can be signed in a week as the government has fixed the subsidy for the next year, Gahlaut said on Friday.
A team of Uralkali's sales officials is in India to finalise deals for over 1 million tonnes, a senior fertiliser industry official said.
Apart from Uralkali, India buys potash from Potash Corp of Saskatchewan Inc , Mosaic Co, Agrium Inc , Arab Potash Co, Israel Chemicals and Germany's K+S AG.
India has been trying secure potash at the same price China bought from global suppliers earlier this year, Gahlaut said.
Uralkali, the world's top potash producer, has agreed to sell 700,000 tonnes of potash to China at a price of $305 per tonne on a cost and freight (CFR) basis in the first half of 2014. (Reporting by Rajendra Jadhav; Editing by Tom Hogue)