India is overwhelmingly dependent on imports for meeting its requirements. That makes us vulnerable to the changing global demand-supply scenario. The Government, will, therefore, need to explore innovative ways to increase self-reliance
Farm distress refuses to go away. This time around, the steep rise in prices of fertilisers — a key input used in crop production — during the current year has increased farmers’ miseries. During Kharif (April-September) 2018, the price of di-ammonium phosphate (DAP), a major source of phosphate or ‘P’ nutrient supply, increased by 30 per cent over Kharif (April-September) 2017. Likewise, the price of complexes and muriate of potash (MoP) — main source of ‘P’ and ‘potash’ or ‘K’ nutrient —increased by 15-60 per cent during Kharif 2018 over Kharif 2017.
The escalating trend continued during Rabi (October 2018-March 2019) season as well. The price of DAP had increased by a further 12-13 per cent during Rabi (October 18-March 19) over the level prevailing during Kharif 2018. The price of MoP during Rabi (Oct 18-March 19) is higher by 25-30 per cent over the Kharif 2018. This has affected farmers as minimum support price (MSP) for crops do not capture the impact of higher fertiliser price.
According to rating agency ICRA, whatever benefit they got on account of implementing the Dr MS Swaminathan Commission recommendation by the Modi Government (it allows them 50 per cent profit over the production cost), has been nullified by higher fertiliser price.
Under the Nutrient Based Subsidy (NBS), the Centre fixes uniform subsidy on per nutrient basis for all manufacturers/importers of complex fertilisers/MoP. The latter in turn arrives at the MRP of these fertilisers after deducting the subsidy amount from the cost of production/import and distribution.
The Government determines the subsidy keeping in mind its overall budgetary position and notifies the rates well before commencement of the year. Given the overarching need to maintain fiscal deficit within the target, it either keeps the subsidy unchanged or even reduce it. Rarely in the past, it has sanctioned any hike.
For the current fiscal (April 2018-March 2019), the Government kept the subsidy rates unchanged even as there was increase in the cost of raw materials viz phosphoric acid, ammonia and MoP used in the production of complex fertilisers. This left the manufacturers/ importers with no other option but to increase the MRP.
Meanwhile, the MRP of urea — a major source of nitrogen or ‘N’ —has remained unchanged despite significant increase in the price of gas, the fuel used in its production as well as increase in cost of imported urea (this contributes over 20 per cent of its consumption). The Government controls its MRP at a low level and excess of the cost over it is reimbursed as subsidy to manufacturer/importer.
Given its enormous appeal to vote bank politics, the urea MRP is almost cast in stone. The current price is more or less the same as it was one-and-a-half decades ago. It won’t be hiked till March 31, 2019 as per the decision taken by the Narendra Modi dispensation in 2015 to freeze it at the prevailing level. This implies ever increasing subsidy but gives no jolts to the mandarins tasked with reining in fiscal deficit.
While handing out step-motherly treatment to P and K, policy-makers often forget that these nutrients are as much important as N to increasing yield and crop quality. Yet, for close to three decades, successive Governments pursued discriminatory policies resulting in excessive use of ‘N’ vis-à-vis ‘P’ and ‘K’. Diminishing returns to fertiliser use, deteriorating soil health and adverse impact on the environment and human health — seen in most parts of the country — are the inevitable consequence of the increasing imbalance in fertiliser use.
It is not as if they are unaware of these problems (read the Economic Survey presented on the eve of Union Budget). Yet, any credible action to alter the course is stymied by sheer populism. But this cannot be postponed indefinitely.
There is an urgent need for increasing urea MRP and reducing the price of DAP/complex fertilisers/MoP. One way is to reduce subsidy on the former and increase on the latter even as the Government continues with extant controls and subsidy regime. But this stereotyped approach is not sustainable.
A preferred course would be to decontrol urea (non-urea fertilisers are already decontrolled) and stop routing subsidy through fertiliser manufacturers/importers. The subsidy — computed as per kg nutrient rate multiplied by quantity of nutrient N, P, K used per hectare —should be directly transferred to farmers’ account.
Sans subsidy, the manufacturers/importers will set prices under a market-driven environment. The competition will force them to keep price low. The farmer will be able to put subsidy to better use by buying more of P&K fertilisers and less urea. There can’t be a better way of combating the problem of imbalance in fertiliser use. This will also entail huge saving in subsidy by curbing inefficient use and inflated payments to manufacturers/importers germane to existing cost-based dispensation.
India is overwhelmingly dependent on import for meeting its fertiliser requirements viz 100 per cent in ‘K’, 90 per cent in ‘P’ and nearly two-third in ‘N’. That makes us vulnerable to changing global demand-supply scenario. The industry will, therefore, need to explore innovative ways to increase self-reliance. A market-driven environment will give a big push to these efforts as well. Is the government listening?
(The writer is a freelance journalist)
https://www.dailypioneer.com/2018/columnists/no-relief-in-sight-for-fertiliser-prices.html