The flawed subsidy and pricing policy followed by governments for years has led to excessive use of urea and a deterioration in soil health The subsidy is given directly to the farmers even as the manufacturers charge consumers a price that fully covers the cost of supply. For over a decade, Indian agriculture has been grappling with an imbalance in fertiliser use involving excessive use of nitrogen or ‘N’ vis-à-vis phosphate or ‘P’ and potash or ‘K’ even as the present NPK use ratio at 6.7:2.4:1 (against the desired 4:2:1) is tilted in favour of ‘N’. This, in turn, has led to a decline in crop yield, deterioration in soil health and adverse impact on the environment. The imbalance has...
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Category: Alternative policy scenario
Free fertiliser industry by removing controls
A prospective buyer will have to think a hundred times before deciding to buy a fertiliser Public Sector Undertaking as these are prone to inefficiencies In a big-bang approach to privatisation of Central Public Sector Undertakings (CPSUs) announced in the Budget for 2021-22, Finance Minister Nirmala Sitharaman had divided them in two broad categories — strategic and non-strategic. The strategic includes four subgroups: atomic energy, space and defense; transport and telecommunications; power, petroleum, coal and other minerals; and banking, insurance and financial services, non- non-strategic includes all other sectors such as industrial and consumer goods, hotel and tourist services, trading, and marketing, etc. As per the plan, the government would privatise all CPSUs in the non-strategic sector (all loss-making enterprises...
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Reining in fertilizer subsidy
Fertilizer subsidy or payments made to manufacturers/importers to cover the excess of the cost of production/import and distribution over a low maximum retail price (MRP) – they are asked by the Union Government to charge from the farmers – has increased by leaps and bounds during the last three years. From an already high of Rs 83,000 crore during 2019-20, it increased to Rs 138,000 crore during 2020-21, Rs 162,000 crore during 2021-22 and could cross Rs 200,000 crore mark during 2022-23. Is there a way, this escalating trend could be reined in? Subsidy payments are made under two broad categories of fertilizers viz. (i) urea; (ii) phosphate or ‘P’ and potash or ‘K’ fertilizers – also branded as non-urea...
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Urea subsidy regime – time to reform
Come October 1, 2021, the price of natural gas (NG) on supplies from fields given to Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) on nomination basis as well as those given under given under the New Exploration and Licensing Policy or NELP will increase from the current US$ 1.79 per million British thermal unit (mBtu) to US$ 3.15 per mBtu – up by US$ 1.4 per mBtu. From November 1, 2014, this price – known as administered price (APM) – is a weighted average of the price prevailing at four global locations viz. UK, US, Russia and Canada. The price is revised every six months. Going by the emerging trend, the APM gas price is likely to...
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Union Budget FY22 misses the chance to reform fertiliser subsidy
The fertiliser subsidy allocation for FY22 signals there will be no reform this fiscal; deficit targets show this is unlikely in the next five years too The subsidy can be restricted only to farmers having less than two hectares. Under the “Stimulus – III” unveiled on November 12, 2020, the Union finance minister, Nirmala Sitharaman, made an unprecedented announcement to release an additional Rs 65,000 crore towards fertilisers subsidy over and above Rs 71,000 crore allocated in the Budget for FY21. She has followed it up by providing a total of about Rs 134,000 crore in the revised estimate (RE). This should be enough to pay for all subsidy dues, including carry forward from FY20. For FY22, she has allocated...
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Fertiliser DBT an illusion
Despite tall claims made by the UPA and the NDA dispensations since 2012, a gradual transition to direct cash or benefit transfer of subsidy to the farmers has not been done The additional provision of Rs 65,000 crore towards fertiliser subsidy (over and above the Rs 71,000 crore allocated in the Budget for 2020-21), that was announced by the Finance Minister under “Stimulus- III” on November 12, will help in clearing all pending dues to the industry. This has led the latter to believe that this is a precursor to a gradual transition to direct cash or benefit transfer (DBT) of subsidy to the farmers. This is illusory, as despite tall claims made by the UPA and the NDA dispensations...
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Fertilizer DBT – miles away
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: Govt must 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. The scale of diversion could be as high as 30%. Taking annual subsidy on urea to be about Rs 50,000–55,000 crore, this would mean that Rs 15,000–16,500 crore of taxpayers’ money is being guzzled by dubious operators. During the last five years or so, the Narendra Modi government has taken several steps to address it. Let us see how these have fared and assess what needs to be done to make a dent. At the outset, let us capture a few basics about the pricing and subsidy policy. To make urea...
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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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Fertile for Reform: Rational use of urea — Chasing a mirage?
The govt must free up urea pricing and opt for direct transfer of fertiliser subsidies to farmers; no other steps to curb urea misuse will work Second, the need for a comprehensive action plan to increase the MRP of urea was recognized by the Dr GVK Rao committee on Consumer Price of Fertilizers (1987). Over the last five years, the Narendra Modi-led government has made several efforts to tackle diversion, hoarding, black marketing and excessive use of urea—a widely-used fertiliser that accounts for nearly half of India’s total fertiliser consumption. These include (i) mandatorily requiring all manufacturers/ importers to do neem-coating of urea supplies (2015); (ii) making disbursal of subsidy to manufacturers conditional upon actual sales to farmers and sales getting...
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