Govt may not hike fertiliser prices

An upward revision in fertiliser prices seems unlikely at the moment, as a government study has found that an increase in fertiliser prices may lead to higher food prices, thus raising the sceptre of an inflationary upswing.

"We analysed the impact of hiking fertiliser prices on food production and food prices. We looked at the relative elasticities, historically. The study showed that an increase in the subsidised fertiliser price (urea) will lead to a reduction in consumption of fertilisers, which will in turn have an impact on food production," a senior government official told Business Standard.

The price of urea, the only fertiliser which gets government subsidy, was last raised by 5 per cent in 2002. 
 

SUBSIDY ON FERTILISERS
Year	Subsidy  burden (in Rs cr)	Annual  in crease  (%)
2004-05	17,149	NA
2005-06	20,841	21.50
2006-07	28,826	27.70
2007-08	39,191	35.95

The Prime Minister's Economic Advisory Council (EAC), in its recent review of the economy in 2007-08, has pointed out that inflation "poses the biggest challenge for 2008".

With global food prices already high due to decreasing production, the UPA government, in all probability, will desist from raising fertiliser prices in a year which is the last prior to scheduled general elections in 2009.

The farm lobby as well as the Left parties, which support the Congress-led alliance at the Centre, are unlikely to support a move that aims at curtailing the spiralling fertiliser subsidy bill.

The fertiliser subsidy burden is estimated at Rs 39,191 crore for fiscal 2007-08. By other estimates, the subsidy burden is expected to shoot up to Rs 50,000 crore in 2008-09.

It is estimated that 88 per cent of the increase in fertiliser subsides over the last five years is on account of a sharp increase in prices of fertiliser inputs internationally.

The remaining 12 per cent increase can be attributed to the rise in consumption of fertilisers, as farmers seek to boost productivity using chemical nutrients.

In fact, the EAC, had last year sought to restrict subsidies to only the vulnerable section among India's farmers. That proposal was aimed at capping the amount of subsidised fertilisers given to marginal farmers at 120 kg for every 2-acre plus farm.

Any additional requirement of fertilisers above this limit would have to be purchased directly by farmers at the prevailing market price.

However, the agriculture ministry shot down the proposal, something that the Expenditure Reforms Commissio, headed by KP Geethakrishnan, had also recommended a few years ago.

The Union fertiliser ministry has since proposed a new policy, that aims to limit subsidies. The proposal is under the consideration of a Group of Ministers (GoM) headed by Agriculture Minister Sharad Pawar.

The last GoM meeting, held on January 18, ended without any decision on the matter. Sources said the GoM is scheduled to hold another meeting next month.

(With inputs from Joe C Mathew)