Even as the union government has estimated country's subsidy burden touching 2.4 per cent of the GDP this financial year, a recent study by management experts believe that removal of fertilizer subsidy would make farming unprofitable in many states and therefore its removal would not be in the interest of farming community.
A study conducted by Vijay Paul Sharma, professor, centre for management in agriculture - IIM-A showed that there is a need to bring down prices of potassium-based and phosphorous-based fertilisers, while increasing that of urea for economic efficiency of farming.
Recently, union finance minister, P Chidambaram had mentioned that India's spending on major subsidies including fuel, fertiliser and food will increase from the targeted 1.9 per cent of the GDP for the current fiscal to 2.4 per cent.
After the implementation of Nutrient Based Subsidy (NBS) Policy from April 1, 2010 for phosphatic, potassic and complex fertilizers, the market price of these fertilisers is determined on demand-supply factors while government pays a fixed subsidy on that.
The study revealed that this policy caused a sharp increase in prices of these fertilisers in the past one year. While price of di-ammonium phosphate (DAP) more than doubled between March 2010 and June 2012, from Rs 9350 per tonne to more than Rs 24,000 per tonne, and subsidy declined from Rs . 19763 per tonne in 2011-12 to Rs 14,350 per tonne in 2012-13.
But Muriate of Potash (MOP) prices jumped from Rs 4455 per tonne in March 2010 to about Rs 17,000 per tonne in June 2012, showing an increase of about 280 per cent.
Fertiliser subsidies account nearly 31 per cent of the total subsidies. As per the government data, for the year 2010-11, fertiliser subsidy stood at Rs 62,300 crore, which is expected to increase to Rs 67,200 crore in 201-12. The study noted that fertiliser subsidies have increased by about 560 per cent between three-years ended 2003-04 and three-years ended 2010-11.
"Radical reforms like dismantling of subsidy and deregulation of fertilizer industry in one go are neither economically desirable nor politically feasible. A case can be made for continuation of fertilizer subsidy with better targeting and rationing to achieve socio-economic objectives," the study noted.
"The increase in subsidy burden is mainly due to increased international prices of raw materials and feed stock. Fresh investments are not being made towards capacity building. Production has remained constant but consumption has increased significantly. This causes increased dependence on imports," added Sharma.
Production of nitrogenous (N) fertilisers grew by 8.9 per cent, while that of phosphatic (P) is six per cent, while entire requirement of potassic (K) fertilisers is met through imports. On the other hand, consumption of N grew by 44.4 per cent, P rose by 73 per cent and K increased by 116.3 per cent.
"Partial decontrol of fertiliser sector has caused a fall in demand and consumption of phosphatic and potassic fertilisers and increased consumption of nitrogenous fertilisers. This deteriorated the N:P:K ratio, crucial for the productivity of the soil," said Sharma.
Therefore, there is a need to check spiralling prices of phosphatic and potassic fertilizers and increase urea prices to maintain NPK balance.
"Government should adopt a balancing act, while on one hand they need to reduce prices of P and K, they should also be allowed to increase prices of urea," he added.
