Under the “Stimulus – III” unveiled on November 12, 2020, the union finance minister, Nirmala Sitharaman made an unprecedented announcement of releasing an additional Rs 65,000 crore towards fertilizers subsidy over and above Rs 71,000 crore allocated in the budget for 2020-21. For an industry used to not getting thousands of crores in subsidy dues year-after-year for several decades in the past, this has come as a big bonanza in as much as the amount will help in clearing almost all of their pending dues. But, the Fertilizer Association of India (FAI) – an umbrella organization of fertilizer manufacturers – is reading a lot more into this decision. It is seeing this as a precursor to structural reforms in this...
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Urea imbroglio – deal with policy flaw
For decades, successive governments have grappled with large-scale diversion, hoarding and black marketing of urea – a widely used fertilizer that constitutes nearly half of India’s total fertilizer consumption. According to an estimate, the scale of diversion and black marketing could be as high as 30%. Taking annual subsidy on urea to be about Rs 45,000 – 50,000 crore, this would mean that Rs 13,500 – 15,000 crore of tax payers’ money is being guzzled by dubious operators in the urea supply chain. For long, this problem was swept under the carpet until such time, prime minister Narendra Modi brought it to the centre-stage within an year of his assuming office in May 2014. During the last 5 years or so, his...
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Fiscal deficit – Shun range-bound target
Modi – government is reviewing the Fiscal Responsibility and Budget Management (FRBM) Act in the light of the economic crisis caused by the Covid-19 pandemic and adopt a flexible, range-bound fiscal deficit (FD) target instead of a fixed number. The issue was discussed at the Economic Advisory Council (EAC) of the 15th Finance Commission (XVFC) on September 4, 2020, wherein the chairman, NK Singh cited similar practice followed by the Reserve Bank of India’s (RBI) with +/- 2% inflation target while deciding its monetary policy. The immediate prompt for this is sharp contraction in GDP (gross domestic product) by about 24% in the first quarter of current financial year and corresponding steep reduction in tax collections even as the expenditure...
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Curbing urea use by half
On December 5, 2017, in his Mann Ki Baat radio address, the Prime Minister said, “Can our farmers take a pledge to reduce urea use by half by 2022? If, they promise to use less urea in agriculture, the fertility of the land will increase and the lives of farmers will start improving.” For this, Modi had in mind a time frame of 5 years Currently, there is excessive use of urea — a dominant source of ‘N’ vis-à-vis complex fertilizers such as diammonium phosphate (DAP) the main source of ‘P’ and muriate of potash (MOP), the main source of ‘K’. This has led to an increasing imbalance in the NPK use ratio. On an all-India basis, currently this ratio...
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Monetary stimulus – does it matter
In the last bi-monthly monetary policy review announced by the Governor, Shaktikanta Das on August 6, 2020, the Reserve Bank of India (RBI) had kept the policy repo rate — the interest rate charged by the RBI on loans it gives to banks — unchanged at 4%. It had also kept the reverse repo rate or the interest rate the banks get on their surplus funds parked with the RBI unchanged at 3.35%. It also continued with the “accommodative” stance of the monetary policy as long as necessary to revive growth and mitigate the impact of Covid-19, while ensuring that inflation remains within the target. In the build-up to the next bi-monthly review (originally scheduled for October 1, 2020, this...
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Gas pricing – conundrum
The Union government has fixed the price of domestic gas at US$1.79 per million British thermal units (mmBtu) effective for six months starting October 1, 2020. This is down by about 25% from US$2.39 per mmBtu applicable to the six month period April 1, 2020 – September 30, 2020. That itself was 25% lower than the price of US$3.23 per mmBtu prevailing during October 1, 2019 – March 31, 2020. The current price is nearly half of what it was 6 month ago. The domestic production of natural gas accounts for about 50% of the total consumption in India of about 175 million standard cubic metres a day (mmscmd), balance 50% comes from other countries and is imported as liquefied...
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Cess – anathema in Indian taxation
Reining in the fiscal deficit (excess of total expenditure over total revenue) has always been a challenge for the union government especially after the enactment of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 which requires it to maintain the deficit within a specified threshold. At the same time, there are certain thrust areas such as education, roads and other infrastructure, telecommunication network in rural areas, exploration of oil and gas etc which mandarins in the finance ministry felt won’t get the desired funds in the normal course of budgeting and deciding allocation. This led them to innovate special taxes such as USO (Universal Service Obligation) levy imposed on telecom service providers, Cess on Crude Petroleum Oil (CPO), Road...
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Labor reforms – step on the gas
The day September 23, 2020 the monsoon session of Parliament ended abruptly, Modi – government passed three bills on labor reforms enshrined in three labor codes viz. The Industrial Relations Code, 2020; The Occupational Safety, Health and Working Conditions Code, 2020; and The Code on Social Security, 2020 in Rajya Sabha (these were passed by Lok Sabha on the previous day). Along with The Code on Wages, 2019 passed by the Parliament last year, these four reform of labor laws are being bandied as the most crucial second-generation reforms that will make it easier to do business, improve competitiveness of Indian industry, make India a manufacturing hub and pursuing “Make in India”. This is a bold move when viewed in...
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Agri – reform bills – don’t mislead farmers
On June 5, 2020, the Government of India (GOI) had promulgated three Ordinances to bring about far reaching reforms in the marketing of agricultural produce. During the current (Monsoon) session, it got the relevant bills passed by the Parliament. Put simply, the bills and their objectives are as under:- The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 provides for freedom of choice to the farmer or trader to conduct trade and commerce while any trader having a permanent account number (PAN) is allowed to buy directly from farmers outside the designated APMCs (Agricultural Produce Market Committee). The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 on ‘contract farming’ provides a legal framework...
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Urea black marketing – how not to curb
In a bid to tackle diversion, hoarding and black marketing of urea (a widely used fertilizer that constitutes nearly half of India’s total fertilizer consumption), the Union government has decided to restrict its purchase to 100 bags from 999 bags per transaction by one purchaser. In a letter dated August 27, 2020, addressed to state chief secretaries, the ministry of chemicals and fertilizers, Chhabilendra Roul has sought their opinions on ‘how many such transactions should be allowed per month to each purchaser’. He has also asked states ‘to identify top 20 urea purchasers in each of their respective districts’. States have also been asked to collect details from buyers which include quantity of urea purchased, dates of purchase, point of sale such as retailers, agricultural land owned...
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