Half measures

Half-hearted reforms can create more problems than they solve. The fertiliser sector is a typical victim of such reforms.

The whole sector has been in disarray ever since the misconceived move to partially decontrol phosphatic and potassic fertilisers in August 1992.

Unable to politically defend this initiative, the Narasimha Rao government lost little time in virtually undoing the decontrol by starting the practice of setting farm gate prices and offering subsidies (called price concession) to compensate the industry for losses sustained, while not re-introducing the distribution curbs.

Since both the sale price as well as the concession are determined periodically by the government, taking the average costs at the given time into consideration, the industry usually stands to lose as input costs are beyond the control of both the government as well as the industry.

This anomaly has created a crisis for the phosphatic fertiliser sector. It finds the subsidy inadequate to meet its losses in view of a substantial increase in the global prices of raw materials like phosphoric acid, rock phosphate, and sulphur.

While the Phosphoric Acid Consumer Group (read DAP producers) has cautioned the government about imminent sickness in this segment, the Fertiliser Association of India (FAI) has done so on behalf of the producers of single super phosphate (SSP), the sulphur-containing phosphatic fertiliser.

Indeed, the rate of concession fixed for SSP has not been revised since February 2002, though the prices of imported rock phosphate have spurted by nearly 40 per cent and those of sulphur by over 100 per cent since then.

As a result, over a score of SSP units have shut shop and the rest are operating at one-fourth of their installed capacity. The scarcity of SSP has forced several state governments to seek the Centre's intervention in augmenting supplies.

There is trouble in the urea sector too. The previous government had begun a phased removal of distribution control by allowing factories in April 2003 to sell 25 per cent of their production free of control.

This proportion was hiked to 50 per cent in the subsequent cropping season, with the clear understanding that it would lead to total distribution decontrol.

However, the new government has put this process on hold, creating needless uncertainty. To make matters worse, the fertilisers and chemicals minister, Ram Vilas Paswan, has been talking in vague terms of changing the fertiliser policy.

The government needs to gets its act together quickly and transparently. Ad hoc policies have plagued this sector for the past 12 years and must give way to a stable long-term fertiliser pricing and distribution policy, keeping in view the critical need to phase out subsidies.

Several committees including the Expenditure Reforms Commission have already submitted their proposals for revamping the fertiliser policy. Many of these suggestions must surely be worth implementing.