Subsidy cut to cap India's 2014/15 potash imports

* Subsidy cut to keep local prices elevated, demand dampened

* India likely to sign import deals by March-end

* Imports seen at 3.5 mln tonnes in 2014/15-industry official

By Rajendra Jadhav

MUMBAI, March 12 (Reuters) - India's potash imports in 2014/15 are likely to remain squeezed despite a 20 percent drop in global prices as the government's plan to cut subsidy will keep local retail prices elevated, a senior industry official told Reuters in an interview.

The south Asian country fulfils its entire potash requirement through imports and global suppliers were banking on recovery in its demand to counter the slump in prices.

"Since the government is cutting subsidy, I think India can buy around 3.5 million tonnes in 2014/15," said P.S. Gahlaut, managing director, Indian Potash Limited, the country's biggest importer. Indian financial year runs from April to March.

India will cut potash subsidies by nearly a fifth for 2014/15 as the government tries to contain a ballooning fiscal deficit, two government sources and an industry official told Reuters last month.

Higher retail prices have already seen a drop in India's annual potash imports to around 3.3 million tonnes in 2013/14 from 6.3 million tonnes in 2010/11, Gahlaut said.

Retail potash prices have doubled since 2011 to 17,000 rupees a tonne as India cut subsidies over the last two years, including a 21.5 percent reduction in 2013/14, and due to a weak currency.

Global potash prices were thrown into a tailspin after Russia's Uralkali broke away from its trading venture Belarusian Potash Company (BPC) in July, sparking competition between producers who had previously maintained a high discipline on pricing.

Global potash miners like Potash Corp, Mosaic Co , Agrium Inc, Germany's K+S AG, Arab Potash Co and Israel Chemicals were hoping strong demand from price-sensitive Indian market in 2014.

Negotiations with global potash suppliers are likely to start from next week and import deals can be signed by the end of March, said Gahlaut, a key Indian negotiator with overseas suppliers.

He said India is likely to secure potash at the same price China bought from global suppliers earlier this year.

"We will pay the same price for potash as China has paid. Because of freight and smaller shipments, usually India pays a slightly higher CFR price than China, but FOB price would remain the same for potash suppliers," he 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.

In the first half of 2013/14 India bought potash at $427 per tonne, but after the break-up of BPC it secured discounts for existing deals to $375.