Of the two fertiliser-related decisions taken by the Cabinet Committee on Economic Affairs at its recent meeting, the token hike of Rs 50 per tonne in urea prices is inconsequential, and the new mechanism for subsidising fertiliser is problematic. An increase of less than one per cent in urea prices will do little to bring down the subsidy bill or to reduce the wide price differential between urea and non-urea fertilisers — a disparity that has steadily worsened since 2010, when prices of non-urea fertilisers were decontrolled. The prices of most phosphatic and potassic fertilisers have more than doubled, even trebled in some cases, during this period; those of urea have been raised only once, and that too by just 10 per cent. Naturally, cost-conscious farmers use relatively too much urea; this is reflected in the current kharif season’s fertiliser consumption numbers. The sales of phosphatic and potassic fertilisers dropped by nearly 30 per cent, as a consequence of erratic monsoon rainfall. But those of urea fell by just five per cent. A skewed fertiliser mix is causing the rapid deterioration of the nutrient profile and hence fertility of Indian soils, more so in places where intensive agriculture is practised. The Cabinet decision ignores this growing problem and does nothing towards introducing price parity.
The new method under which subsidies are delivered to the fertiliser industry, too, is problematic. It has certain features that may hamper its smooth implementation. The plan is to release the subsidy only after receiving acknowledgements of actual sale to farmers by each retailer and then cross-checking these data against total dispatches from the fertiliser units. The concern is that this will lead to delays and disputes in reimbursement. Subsidy arrears will mount, causing manufacturers and importers liquidity problems.
Instead of taking baby steps that lead to nowhere, the government should concentrate on introducing much-needed and long overdue reforms. The nutrient-based subsidy (NBS) scheme, launched in April 2010, was well conceived. Unfortunately, the potential advantages were frittered away through poor and piecemeal implementation. It has, thus, not helped to promote balanced nutrient application by farmers. Nor has it ensured healthy growth of the domestic fertiliser industry. The problem has worsened since the nutrient-based system does not cover urea, the most used fertiliser. Pending such reform and the easing of controls, the fertiliser sector will not attract investors. No capital investment has been made to create fresh capacity in this sector for over a decade, barring some revamp and expansion projects. Dependence on imports even for urea, the only fertiliser that can be produced indigenously – the others are either wholly imported or produced locally from imported raw material – has soared to over 30 per cent. Investors are also waiting for the government to come up with an effective investment policy for this sector. Unless such issues are resolved, the ills of the fertiliser sector are unlikely to go away.
