During the debate on the Food Security Bill (FSB) in the Lok Sabha on August 26, 2013, Congress president Sonia Gandhi observed “it is time to send out a big message that India can take the responsibility of ensuring food security of all Indians”. She added, “the question is not whether we have the resources to implement the food Bill; we have to mobilise resources anyhow”. She also acknowledged leakages in the PDS and asked the states to strengthen it. Gandhi’s observation would appeal to almost all Indians with the promise of subsidised access to food in ‘adequate’ quantities (though 5 kg a month per person is hotly contested) to all. Thus, even those with the lowest income imaginable would...
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Articles
Fertilisers: Back to the licence raj
Elections can wreck even the best policy reform. A vivid demonstration of this is available in the Office Memorandum dated June 26, 2013 issued by the Department of Fertilisers (DoF). It says that under the nutrient-based scheme (NBS) for de-controlled di-ammonium phosphate (DAP)/complex fertilisers, potash and Single Super Phosphate (SSP), the Government will fix ‘reasonable’ MRPs and manufacturers charging higher will be deemed to be ‘profiteering’ from the scheme. The Memorandum specifies action in cases of violation. This would take the form of denial of subsidy equal to the extent of the‘un-reasonable’ amount for the product/grade concerned or its ‘exclusion’ from the purview of NBS. Companies have been directed to submit detailed annual cost data from 2010-11 onwards, duly certified...
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Running out of gas
In its meeting held on July 17, 2013, the Empowered Group of Ministers (EGoM) considered the ministry of petroleum and natural gas’ (MPNG) proposal to re-prioritise allocation of domestic gas from RIL’s KG-D6 fields ‘to treat power on par with fertilisers’. It was decided to retain extant top priority for the fertiliser sector for now. The fertiliser sector was spared the ignominy of snatching away its claim on gas not because members of the EGoM recognised its legitimacy. It was the fear of reduction in urea production due to curtailment in gas supply and the resultant shortage at the time of impending elections that drove them to maintain the status quo. Gas is a national resource and its use has...
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Fiscal consolidation, a joke
Food, fertiliser and fuel subsidies will overshoot the Budget provision by over Rs 1 lakh crore. There has been much ado about fiscal consolidation ever since P. Chidambaram took over the reins of the Finance Ministry. During 2012-13, he achieved a fiscal deficit of 5.2 per cent against a target of 5.3 per cent and is aiming at 4.8 per cent during the current year. Last year, one major factor at work was compression in investment, that was fortuitous as key ministries simply could not spend the allocated funds. Another factor was substantial under-provision for subsidies, even under revised estimates. Against a Budget allocation of Rs 5,21,025 crore for planned expenditure (PE), the revised estimate was Rs 4,29,187 crore. The...
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Food Security Act – A recipe for disaster
The Cabinet has approved promulgation of an ordinance to give effect to the Food Security Act (FSA). Far from providing food security, the Act will crack at its very foundation. The FSA guarantees availability of 5 kg of cereals per person per month at R3 per kg rice, R2 per kg wheat and R1 per kg coarse cereals to 67% of India’s population (75% rural and 50% urban). This is an astounding admission that six-and-a-half decades after Independence, nearly 800 million of country’s population is so poor that it needs be given food at ‘close to zero’ prices. The huge gulf between what people can pay for food and the cost of supply (R20 per kg plus) makes a mockery...
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No basis to gas price hike
A unit price of $8 for gas allows for recovery of capital costs at levels of output – in other words, monopoly pricing. The Cabinet Committee on Economic Affairs has approved doubling the gas price from the existing $4.2 per mBtu to $8.4 per mBtu for all domestically produced gas. Applicable from April 2014, the revised price is based on a slight modification of the Rangarajan panel’s formula. The Cabinet took the decision despite strong opposition from two key Ministries viz., fertiliser and power. While the Power Ministry wanted price to be maintained at the existing $4.2 per mBtu, the Fertiliser Ministry was reconciled to $6.7 per mBtu mooted by the Ministry of Petroleum and Natural Gas (MPNG). Subsidy burden...
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Fertilizer bonds – a manifestation of deeper malaise
Fertiliser Association of India (FAI) has filed a petition in Delhi High Court (DHC) seeking compensation for losses incurred on ‘fertilizer bonds’ that were given to fertilizer manufacturers in lieu of subsidy during 2007-08 & 2008-09. These bonds were valued at Rs 27,500 crores accounting for 20% of subsidy payments during those 2 years. According to FAI, loss is estimated at Rs 3500 crores. About 50% of loss was on sale of bonds worth Rs 11,795 crores to RBI. Why were these bonds issued? What is their nexus with subsidy? What prompted companies to sell these? To unravel these questions, we need to look at ‘genesis’ of subsidy. Government of India (GOI) controls MRP of urea at a low level...
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Protecting poor farmers at WTO
In run up to WTO ministerial at Bali (December, 2013), G-33 developing countries, led by India have sought ‘flexibility to continue helping poor farmers through support prices without a limit on subsidy’. This has been promptly rejected by USA on the ground that this will tantamount to altering rules of the game. US stance was echoed by Mr Pascal Lamy, DG, WTO. The rejection is without basis! Under Agreement on Agriculture (AoA) (1995), support to poor farmers was ‘excluded’ for calculating aggregate measurement support (AMS) and deciding subsidy reduction commitments with reference to 1986. The raison de atre for this exclusion was that support to poor farmers does not have any ‘trade-distorting’ effect, whereas WTO disciplines target only those forms...
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Linkage with international energy price – ‘Duality’ syndrome
Recently, Dr Montek S. Ahluwalia observed that ‘8% growth in GDP can’t be guaranteed unless Indian product prices are linked to international energy prices’. There can be no dis-agreement on this especially in case of energy where our import dependence is above 80%. But, who will do it and when? Considering that all sources of energy supply have been under an administered/controlled price regime for decades, initiative has to come from Govt only. But, actions thus far fail to inspire! Naphtha, fuel oil & LSHS (low sulphur heavy stock) are used as feedstock & fuel in making of fertilizers. Fertilizers mainly urea, DAP & other complex fertilizers are used by farmers for raising crop yield. Under administered price regime (APR)...
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Debate – Should gas prices be raised as per Rangarajan plan?
While a price hike to about $8/mmBtu from $4.2 at the moment will increase fertiliser production costs and subsidies, even this hike will not be enough to bring in new investments or prop up gas production from existing fields Uttam Gupta Gas is a natural resource which is ‘inherently’ more energy efficient. It is much cleaner and environment friendly and requires less investment, and is much sought after. It is also most preferred for production of fertilisers. About 80% of urea capacity in India is based on gas. The rest on fuel oil and naphtha is being switched over to gas. A spate of projects under new urea investment policy (UIP) are also based on natural gas. The viability of...
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