Modi – government is running in its sixth year [five years of the first term and first of Modi 2.0]; we are yet to see a coherent announcement on reforms in the fertilizer sector forget giving a ‘stable’ and ‘predictable’ policy badly needed to give a clear-cut signal to various stakeholders for taking decisions with regard to investment, innovation, imports, logistics and use etc.
All that we see is exhortation from the Prime Minister himself made in bits and pieces from the public platform. Let us pick up some of most crucial ones. First, in the 38th edition of “Mann ki Baat” delivered on November 26, 2017, Modi exhorted farmers to take a pledge for reducing consumption of urea [the most widely used fertilizers supplying nitrogen or ‘N’ to plants] by 50% by 2022. Recently, while stressing on zero budget natural farming [ZBNF], he vowed to completely eliminate its use.
Second, the government is committed to increasing domestic production of fertilizers [urea included] and in furtherance of this, Modi informed in public rallies about rejuvenation of ailing fertilizer plants under public sector undertakings [PSUs] viz. Talcher, Gorakhpur, Sindri etc. Third, he has reiterated his pledge ad infinitum to eliminate diversion of urea to chemical industries by requiring all supplies [indigenous production and imports] to be coated with urea. Fourth, the centre has distributed soil health cards [SHC] to all 145 million farmers to guide them on proper use of agricultural inputs including balanced fertilizer use – based on analysis of the soil.
Fifth, Modi has vowed to curb leakage of fertilizer subsidy by implementing direct benefit transfer [DBT] – using the JAM [Jan dhan-Aadhaar-Mobile] platform – to ensure that the benefit of subsidy reaches in full to the intended beneficiaries.
Connecting the dots, one gets a totally confused picture. At one level, these objectives work at cross-purpose with each other. At another, government policies already under implementation are completely out of sync with the objectives.
If, an overarching objective is to aim at reduction of urea use by 50% from it current level [or complete elimination] then, why should the Prime Minister be talking of increasing production. One may argue that higher indigenous output will go toward reducing imports. But, this argument is not sustainable.
Let us look at some numbers. The current urea consumption is about 30 million ton of which 24 million ton comes from domestic production and 6 million ton import. When, consumption is down to 15 million ton [assuming a scenario of 50% reduction], then even at existing production, there will be surplus of 9 million ton. Disposing this surplus will be a daunting challenge as much of it being high cost, it won’t be possible to sell in the international market. Further, what will the government do with the additional production that will come post-revival of the ailing PSU plants?
By making neem coating of all urea supplies mandatory, Modi vowed to completely eliminate diversion to result in easy availability to farmers and saving in subsidy. But, this is negated by an archaic policy of controlling maximum retail price [MRP] of urea at a low level unrelated to the cost of supply which is 2-4 times higher [depending on the plant from where supply is made]. With such a huge arbitrage opportunity, the temptation to divert is too strong to resist. This can’t be reined in merely by neem coating.
True, neem coating renders urea unfit for use in chemical industries. But, how does the government ensure that it is being done? Does it have the machinery to keep track of a mammoth 600 million bags of urea [corresponding to 30 million ton consumption]? It is most unlikely that policing is being done. It is also unlikely that suppliers are complying with the requirement. Had it been so, there would have been a big reduction in import and corresponding decline in subsidy; but we see nothing of that sort happening.
The Prime Minister wants the much trumpeted SHCs to glide farmers go for balanced fertilizer use, reduce wastage and improve soil health. But, the disjointed policies pursued by his government viz. disproportionately high subsidy on urea [source of ‘N’] vis-à-vis complex fertilizers [source of phosphate ‘P’ and potash ‘K’] as also denial of secondary transportation cost [on movement from unloading rake point by road to the retail point] to the latter prompts them to use excess of urea leading to imbalance in fertilizer use.
Modi has vowed to curb leakage of fertilizer subsidy via DBT but the government continues with the extant unit-wise new pricing scheme [NPS] for urea which protects high cost units [thus, we have units producing @Rs 20,000/- per ton plus co-existing with others producing at half this cost]. Even as the authorities may prevent bogus claims – as the subsidy gets transferred to the bank account of the manufacturer after sale is authenticated by the farmer using his Aadhaar number – excess payments to inefficient manufacturers continue leading to in high subsidy payments.
The Prime Minister wants to give a push to ‘Make in India’ but the extant policy dispensation gives no incentive to companies invest in exploring indigenous resources [at present, India depends heavily on import for meeting its fertilizer requirements viz. nearly 2/3rd in nitrogen, 90% in phosphate and 100% in potash] as also in research and development [R&D] for delivering more efficient and cost effective products to farmers. As a result, even as the country remains vulnerable to exploitation by global suppliers, farmers don’t get major break-through in yield from fertilizer use.
To sum up, it is a double whammy facing the fertilizer sector. While, on one hand, political leadership is not clear on the direction it should take, on the other, bureaucrats who are responsible for preparing the finer points of the policy are still glued to the past. They continue with a basic framework laid down in the 70s and 80s when the sole objective was to increase indigenous production and boost consumption of fertilizers. Much water has flown down the Ganga since then.
Now, issues such as fertilizer use efficiency, balanced fertilization, increase in crop yield, improvement in soil health, efficiency and cost optimization in the supply chain, reduction in subsidy etc have gained prominence. Clearly, the antiquated framework of the past won’t help in meeting these demands. The way forward is unshackling fertilizers from controls and leaving all crucial decisions viz. investment, production, import, distribution and use to be guided by market forces. The government intervention should be restricted to giving subsidy to the poor farmers directly in their bank account.
This will help in achieving all the good things Modi is talking. Left to market forces, urea MRP will increase to a level whereby its use gets curtailed leading to reduction in current imbalance in fertilizer use. By reducing arbitrage to zero, this will automatically eliminate diversion. Further, by creating a level playing field, manufacturers will endeavor to increase efficiency and reduce cost. They will invest in R&D and innovation and find more effective and efficient solutions to farmers’ needs. The ‘Make in India’ program will get a boost. Finally, the government will save on subsidy.
Modi should use his clout to crack the whip.