A major decision taken by the government in the May 13, 2015 meeting of the Union Cabinet – chaired by Prime Minister, Shri Narendra Modi – was to keep maximum retail price (MRP) of urea frozen for a period of 4 years. This can throw any logical person in to a state of bewilderment!
During the last one-and-a-half decade or so, urea MRP which is under statutory control [for close to six decades now] was not touched at all except once in 2010 when it was increased by a meagre 10%. This was despite inflationary forces gripping all other sectors and minimum support prices (MSP) of paddy, wheat and other cereals increasing manifold.
The current MRP is ridiculously low at Rs 5360 per ton or US$ 85 per ton (at current exchange rate US$ 1=Rs 63) when compared to much higher prices in neighbouring countries and reports of rampant smuggling. Out of total urea consumption about 31 million tons (2014-15), a substantial portion [30% as per informal estimates] is diverted for industrial use, courtesy its artificially low price hence, huge arbitrage opportunities.
The current selling prices of non-urea fertilizers not subject to price control are substantially higher than urea price. The price of DAP/NPK fertilizers at Rs 24,000/22,000 per ton is 4-4.5 times higher whereas price of MOP at Rs 17,000 per ton is over 3 times. This has led to excessive and indiscriminate use of urea [main source of ‘N’] and substantially reduced consumption of DAP/NPK/MOP [main source of ‘P’ and ‘K’]. As a result, current NPK use is heavily imbalanced at 8.3:2.4:1 as against an ideal 4:2:1.
The imbalance is fertilizer use is not only reported from high consuming states with irrigation facilities such as Punjab, Haryana, western Uttar Pradesh and Andhra Pradesh but also from other states where irrigation network is not that strong. Continuing imbalance [ever since 1992 when government suddenly decontrolled non-urea fertilizers even while keeping urea under control] has led to soil degradation, groundwater and air pollution and could have a serious impact on overall productivity and human health.
Due to continued control on urea MRP at low level on one hand and steep increase in prices of feedstock and other inputs on the other [besides increase in cost of imported urea], fertilizer subsidy has increased leaps and bounds. Subsidy on urea increased from around Rs 5800 crores in 1992-93 to Rs 43,000 crores in 2014-15. This has hampered efforts of successive governments in fiscal consolidation.
Gas is the feedstock used for nearly 90% of domestic urea production. Due to shortfall in production [around 100 million standard cubic meter per day (mmscmd)], domestic availability of gas for fertilizer is only about 26 mmscmd against requirement of over 47 mmscmd leading to import of LNG (liquefied natural gas) at much higher price than cost of domestic gas. Yet, so much of urea is wasted due to its excessive and in-efficient use.
Successive governments recognized existence of aforementioned problems. For instance, in the customary annual Economic Survey presented to parliament preceding the Union Budget, we invariably find a reference to persisting imbalance in fertilizer use wherein the government would also stress the need for corrective action. Yet, they would continue with age-old flawed and disjointed policies – control on urea MRP at low level occupying a pivotal position in these policies. For details, pl read:-
Prime Minister Modi is known for his tough and un-compromising stance on reforms and he has walked the talk in a host of other areas. The Economic Survey presented before the budget for 2015-16 also recognized the problem of severe imbalance in fertilizer use and rising subsidy. The government also had with it the report of expenditure management commission (EMC) under Dr Bimal Jalan which suggested steps to rationalize subsidies. Why then he too is unable to walk the talk in this area?
To reduce the imbalance, government ought to have increased subsidy on non-urea fertilizers so that their selling prices could be brought down. Yet, subsidy rates on DAP/NPK/MOP/SSP for 2015-16 have been kept at the same level as in 2014-15. This together with urea price remaining frozen for next 4 years starting 2015-16 and commitment to fiscal consolidation road-map [which will not allow increase in subsidy on non-urea fertilizers], means that the imbalance in fertilizer use is here to stay for a long period!
Modiji could have dismantled extant unit-wise new pricing scheme (NPS) for urea and replaced it by a uniform nutrient based scheme (NBS) to bring the policy dispensation in line with non-urea fertilizers [in 2012, this recommendation was made by a group of ministers (GoM)]. Yet, he has persisted with NPS with some tweaking which will neither give more production nor save on subsidy and not even improve efficiency of fertilizer use. For details, pl read:-
The government says ‘neem coating’ of urea [mandatory for 75% of production and can go up to 100%] will ensure that it is not diverted for industrial use. But, who will do the policing? Who will check each bag (we are talking of a colossal 600 million bags of 50 kg)? That apart, unless you address the main cause which is artificially low urea price, it will be impossible to rein in diversion and indiscriminate use.
The share of fertilizers in total cost of agricultural inputs is less than 10%. Therefore, even if urea price is increased by 50%, farmer’s expenses on inputs will only go up by 5%. This too can be offset [in fact, more than offset] by improvement in efficiency of use vide reduced imbalance in use and adoption of scientific agronomic practices. If, properly explained, this won’t invite any adverse reaction from the farming community.
Still, if Modiji is unable to break-away from the UPA/Congress DNA, an overriding reason could only be political. The electoral politics in state elections especially in rural areas has got impregnated with price of urea which by far is the most popular nitrogenous fertilizers and considered to be the king among all fertilizers and any government even whispering about an increase [forget actually increasing] will be viewed as anti-farmer.
Such a ‘perception’ though completely out of sync with underlying facts, has been built over a period of time. All opposition parties look for slightest of opportunity to exploit this against the ruling establishment. Assembly elections are due in big states one after the other viz., Bihar (2015), West Bengal (2016) and Uttar Pradesh (2017). Now, if Modi – government were to signal its intent to increase the price, it is sure to loose elections.
That in its carefully orchestrated assessment is the sole reason why it has not only refrained from increasing the price now, it has also proclaimed that it will remain frozen for 4 years which normally is not done. Perhaps, it feels that loss of credibility by not advancing reforms in urea is a small price vis-a-vis the big gain it sees on the political front.
Meanwhile, the crop yield, crop quality, soil health, human health and environment will continue to suffer at altar of political tussle!