 "Controls reason for thriving black market in urea")
Nitrogenous fertiliser urea is an outstanding example of how government controls and an ill-conceived subsidy are the reason for its large-scale diversion to non-agricultural uses. Moreover, good quantities of both domestically produced and imported urea find their way into neighbouring countries, where they command a premium of around 100 per cent over the maximum retail price (MRP) here.
The government claims it should be able to stop diversion of at least one million tonnes (mt) of urea to non-agricultural uses during the 2016-17 crop season, thanks to neem-coating, making it a no go as an industrial input. Neem-coated urea could be a game changer in that its application will arrest leaching of nitrogen into the soil causing groundwater contamination, and at the same time improve productivity of rice and wheat. Urea in this form has agronomic efficiency built in. But this bit of reform and also the pooling of gas prices that led to lowering of urea production cost are not enough it of its many ills that hurt small and marginal farmers.
Fertilisers, including urea, diammonium phosphate (DAP) and muriate of potash (MOP) claim subsidy amounting to 0.5 per cent of gross domestic product (GDP). In fact, only food has a much bigger share of subsidy allocation on different heads. The 2015-16 Economic Survey has made glaring revelations of how government interventions in fixing MRP of urea, subsidy allocation to producers on “firm specific cost-plus basis” that tolerates inefficiency, import canalisation and direction as to when and how much to import, and telling local manufacturers and importers where to sell are causing distortions in urea distribution, leading to large-scale subsidy leakages. A study of samples of urea allocation in a very large number of villages and its use by cultivators points to diversion of as much as 41 per cent to industrial users and to adjoining foreign markets. Based on data for 2012-13, the Survey says 100 per cent of farmers in the three eastern states with common borders with Bangladesh would buy urea in the black market. In Uttar Pradesh, which shares borders with Nepal, 67 per cent farmers were found buying urea at a hefty premium over the controlled price. Add all this up and you will find nearly 51 per cent of the Indian farming community is buying urea in the black market. On an average, because of large-scale leakages, farmers here are obliged to pay a premium of 61 per cent over MRP plus taxes.
Leakages also mean that just about 35 per cent of urea subsidy will reach small and marginal farmers. They are also the ones who bear the brunt, unlike farmers with large holdings, in times of shortage. The Survey says “large farmers are typically better connected and, therefore, are able to secure subsidised urea” when supply becomes thin due mostly to ill-timing of imports. The problem basically is with canalisation, which also involves the department of fertiliser to make annual assessment of domestic supply and demand of urea, and on that basis recommend the amount to be imported. But there are pitfalls in estimating fertiliser demand, which is largely dependent on how the monsoon will behave and how much land will come under cultivation in a season. The Survey says any “misestimates – especially shortages – are difficult to correct” afterwards because imports under the present system are time-consuming. Shortages that fan black marketing will be avoided if urea imports are decanalised and the government refrains from recommending import volume. Unlike urea, imports of DAP and MOP are not controlled.
Large-scale leakages are unavoidable when urea has a subsidy component as high as about 75 per cent of its production cost and its MRP is around one-third the price of the imported material. What is leading farmers to use disproportionately large quantities of urea and not the recommended amounts of DAP and MOP is that unlike nitrogen, phosphorous and potassium fertilisers carry fixed subsidies based on their nutrient contents and their prices are determined by market forces. In our kind of weather and soil conditions, application of NPK should ideally be in the ratio of 4:2:1. But in state after state, this is more honoured in the breach. The skewed application of NPK is the reason for decline in marginal productivity of fertilisers since the 1970s. Migration to nutrient-based subsidy for urea and its price deregulation will rid the sector of many of its ills.
The government claims it should be able to stop diversion of at least one million tonnes (mt) of urea to non-agricultural uses during the 2016-17 crop season, thanks to neem-coating, making it a no go as an industrial input. Neem-coated urea could be a game changer in that its application will arrest leaching of nitrogen into the soil causing groundwater contamination, and at the same time improve productivity of rice and wheat. Urea in this form has agronomic efficiency built in. But this bit of reform and also the pooling of gas prices that led to lowering of urea production cost are not enough it of its many ills that hurt small and marginal farmers.
Fertilisers, including urea, diammonium phosphate (DAP) and muriate of potash (MOP) claim subsidy amounting to 0.5 per cent of gross domestic product (GDP). In fact, only food has a much bigger share of subsidy allocation on different heads. The 2015-16 Economic Survey has made glaring revelations of how government interventions in fixing MRP of urea, subsidy allocation to producers on “firm specific cost-plus basis” that tolerates inefficiency, import canalisation and direction as to when and how much to import, and telling local manufacturers and importers where to sell are causing distortions in urea distribution, leading to large-scale subsidy leakages. A study of samples of urea allocation in a very large number of villages and its use by cultivators points to diversion of as much as 41 per cent to industrial users and to adjoining foreign markets. Based on data for 2012-13, the Survey says 100 per cent of farmers in the three eastern states with common borders with Bangladesh would buy urea in the black market. In Uttar Pradesh, which shares borders with Nepal, 67 per cent farmers were found buying urea at a hefty premium over the controlled price. Add all this up and you will find nearly 51 per cent of the Indian farming community is buying urea in the black market. On an average, because of large-scale leakages, farmers here are obliged to pay a premium of 61 per cent over MRP plus taxes.
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Large-scale leakages are unavoidable when urea has a subsidy component as high as about 75 per cent of its production cost and its MRP is around one-third the price of the imported material. What is leading farmers to use disproportionately large quantities of urea and not the recommended amounts of DAP and MOP is that unlike nitrogen, phosphorous and potassium fertilisers carry fixed subsidies based on their nutrient contents and their prices are determined by market forces. In our kind of weather and soil conditions, application of NPK should ideally be in the ratio of 4:2:1. But in state after state, this is more honoured in the breach. The skewed application of NPK is the reason for decline in marginal productivity of fertilisers since the 1970s. Migration to nutrient-based subsidy for urea and its price deregulation will rid the sector of many of its ills.