Last week the finance ministry rolled back the hike in fertiliser prices announced in the Union Budget under criticism from various political parties. The fertiliser industry, which had hailed the price increase, is disappointed with rollback in prices.
Thanks to the the rollback, profitability of fertiliser manufacturers was not expected to be affected. However, their operational efficiency of the manufacturers would be hampered because it would increase their dependence on subsidies.
In the Budget speech, finance minister Jaswant Singh announced that with rising costs of naphtha and gas feed stock and in order to contain the fertiliser subsidy, the issue price of fertiliser would be increased by Rs 12 per kilo of urea, Rs 10 for di-ammonium phosphate (DAP) and muriate of potash (MOP) along with modifications of complex fertilisers as well.
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The government rolled back the entire fertiliser price hike, amounting to an additional subsidy outgo of Rs 700 crore. This rollback covered urea, DAP, MOP and other complex fertiliser products.
The government wanted to slowly phase out the control on urea prices and was aiming at total price decontrol by 2006. But, according to industry observers, the government pays about an additional Rs 3500 crore every year by way of subsidies.
So in order to allow for this gap to be filled, there has to be a substantial increase in the urea prices every year. This has not happened for more political reasons than economic.