Inexplicable neglect

The fertiliser industry is caught in a crisis of the government's making, and the government seems to have no intention to address the problem. The bulk of the industry's input and product prices are determined by the government. With the focus being on keeping farm input costs low, the product price never matches cost. The difference is made up to the industry through a subsidy payment. The problem is that the subsidy is not being paid, and the arrears have now mounted to a level where these will start adversely impacting fertiliser production and hence availability. Besides, the present pricing policies for urea and other fertilisers are valid only till the end of this month and the new ones have not yet been formulated. The government is naturally not unaware of all this. Yet, no provision has been made in the Budget for clearing, or even reducing, the arrears in subsidy payment. Nor have new pricing policies been framed, though the two committees set up to advise the government in this regard have already submitted their reports.

The arrears which the government owed the industry crossed Rs 5,000 crore in January. These are reckoned to swell further to Rs 8,000 crore by the end of the current financial year. In fact, no money has been paid to the industry since October, though the factories have continued to produce and market nutrients at government-dictated prices, blocking their own funds. Inevitably, many fertiliser companies have run out of working capital and may now have to stop production. The urea units that use naphtha and fuel oil as feedstock are likely to be the worst hit because of their higher feedstock cost. But it is worth noting that the urea industry is not the only segment of the fertiliser sector to have been crippled by the government's inexplicable inaction. The manufacturers of phosphatic fertilisers, including single super phosphate (SSP), are equally affected. Indeed, some phosphatic and potassic fertiliser units have dues pending from as far back as 1997-98. In the urea sector, this trend has aggravated since 2003-04.

The genesis of the problem lies in the government under-estimating the subsidy and not making adequate provision in successive Budgets. As a result, the budgeted funds normally get exhausted by October-November every year, culminating in further payments to the industry. Indeed, the Fertiliser Association India (FAI) is reported to have drawn the administration's attention to this specific aspect, pointing out that the actual funding requirement for subsidy payment would be Rs 22,000 crore, and not the Rs 16,127 crore provided in the Budget. But the government chose to hike the allocation by only Rs 1,000 crore through supplementary grants. Worse still, the Budget for the next financial year shows no effort to rectify the anomaly.

What is needed is a thorough review of the pricing and subsidy policies that bedevil the fertiliser industry. It needs to be realised that the fertiliser subsidy is linked not only to farm-gate prices, which the government likes to keep low, but also to the government-controlled pricing of feedstock and the Central and state taxes on fertilisers. All the subsidy costs on these accounts are ultimately borne by the government itself. Besides, the procedures for disbursing the subsidy also need to be revamped to cut down on delays. If these issues are not sorted out immediately, the industry will be in serious trouble.