The exhortations by prime minister, Modi and his cabinet colleague, chemicals and fertilizer minister, Ananth Kumar regarding the success of neam coating of urea [ordered by Modi last year to cover all of domestic production and import] could have much deeper ramifications than mere stoppage of diversion to industrial use and smuggling to neighboring countries.
The total consumption of urea in India is about 30 million tons annually including 22 million ton indigenous and 8 million tons imported. Since, all of this is sold by manufacturers/importers at a low ‘controlled’ price under the Fertilizer Control Order [FCO], the excess of cost of production/import and distribution over this price is reimbursed to them as subsidy by Government of India [GOI]. For determining subsidy to domestic manufacturers, cost is taken on unit-specific basis.
The subsidy per ton multiplied by quantity gives total subsidy. The payments fluctuate from year to year depending on landed cost of import urea/cost of making it in India on one hand and quantum of import/production on the other. In the budget for 2016-17, the allocation for subsidy on urea is Rs 50,500 crores including Rs 38,200 crores on domestic urea and Rs 12,300 crores on imported urea.
Given the huge gap between the price at which urea is available in the international market and its subsidized price on sale to farmers, chemical industries and farmers/traders in neighboring Bangladesh, Nepal, Sri Lanka etc have a strong incentive to grab this subsidized urea. Indeed, this is happening on a gargantuan scale.
It is estimated that nearly 30-40% of urea gets diverted in this manner. While, dubious traders and chemical factories [along with corrupt bureaucrats and politicians who facilitate this] have a heyday, farmers have been facing shortages in the past and even ‘lathi-charge’ [to quote Modi] whenever, they held protest.
With neem coating which renders urea unfit for use in chemical factories, Team Modi claims that diversion has stopped [though it is doubtful whether smuggling to neighboring countries has been reined in as most of such transfer is for use by farmers only] and central government has not received complaint of shortage. Urea coated with neem is also more efficient. Besides, it is environment friendly as it reduces leaching of nitrogen in to soil and water.
If, the claim is true, it is a great accomplishment indeed. This is more so because it makes the larger picture in terms of demand-supply balance, self-sufficiency in fertilizers, dependence on import and subsidy pay out etc far more promising.
Of total urea consumption 30 million tons, @30% the quantum of diversion works out to 9 million tons. This diversion could not have been at the cost of farmers sans transient problems caused by delayed arrival of imported material at consumption points [decisions in regard to ‘how much’ and ‘when’ are taken by a steering committee of secretaries under secretary, department of fertilizers]. This is fairly logical surmise as you can’t have a scenario of farmers requirements remaining un-met year after year.
In plain words, it means that total urea consumption of 30 million tons includes 21 million ton consumed by farmers in India and balance 9 million ton used by chemical factories in India and by farmers or factories in neighboring countries [albeit in the name of Indian farmers]. When, following neem coating, the diversion is stopped, there would be a clear saving of 9 million tons as farmers needs were any way being fully covered at 21 million ton.
In turn, this implies that the deficit of 8 million tons [excess of demand 30 million ton over domestic production 22 million tons] will completely disappear. At current production level, India will not only be self-sufficient but would also have a surplus of 1 million tons which can be exported. The talk of country being deficit [albeit hugely deficit] in urea ad infinitum will be a thing of the past.
The ball does not stop here. Application of neem coated urea results in substantial improvement in its use efficiency. Even assuming 20% increase in efficiency, this would yield saving of 4.2 million tons [21×0.2]. In other words, for same level of crop output, farmers can manage with 16.8 million ton of urea. This will increase the surplus to over 5 million tons.
The government would have enormous leeway in managing supplies. It need not have to pursue setting up of joint ventures abroad [at present, it is looking for opportunities in countries like Iran, Qatar etc] or worry much about resurrection of sick fertilizer plants purportedly to achieve self-sufficiency. This is because with ‘real’ demand being much less [after eliminating leakage/diversion and enhanced efficiency of use], India would be surplus even at extant production.
India is hugely short of gas, feed-stock/fuel used in urea manufacture. For sustaining existing production level, it imports one-third of its gas requirements. In a scenario of business as usual [no check on diversion and existing low efficiency], gas needs of fertilizer industry would grow rapidly leading to ever increasing dependence on imported LNG [liquefied natural gas]. This can be substantially moderated with prudent demand management.
Finally, the government will gain enormously by way of saving in subsidy. With elimination of diversion [albeit complete], there won’t be any need for urea import resulting in clear saving of Rs 12,300 crores. The 20% improvement in efficiency would result in further saving of about Rs 7700 crores [Rs 38,200 crores (subsidy on domestic urea)x0.2]. So, the total saving would be Rs 20,000 crores annually.
Ananth Kumar promises to make India self-sufficient in fertilizers within 3 years from now. Why wait that long? If, claims made by Team Modi prove true, then we have already achieved it in urea segment along with huge saving in subsidy plus more income for farmers and less damage to environment.
A lot depends on how ‘genuine’ are the claims!