A Group of Ministers (GoM) is likely to meet this week to consider Fertiliser Ministry's proposal to increase fixed cost of urea by Rs 350 per tonne, a move which could lead to increase in subsidy amount.
To ensure urea is available at an affordable rate to farmers, the government has subsidised it by fixing the maximum retail (MRP) price at Rs 5,360 per tonne, lower than the production cost. It reimburse the difference between production cost and MRP to urea firms in the form of subsidy.
According to sources, the Fertiliser Ministry has moved a proposal to raise the fixed cost of production of urea by 350 per tonne by taking base year as 2008-09.
At present, the government takes into account the fixed cost of urea output with base year as 2002-03 while calculating urea subsidy.
But the industry has been arguing that fixed costs have risen since then and demanded upward revision in this by Rs 700 per tonne by taking the base year as 2011-12.
For a urea plant, fixed cost mainly includes salary & wages, contract labour, repair & maintenance and selling expenses.
The Fertiliser Ministry's proposal is being prepared for consideration of a group of ministers (GoM) headed by Agriculture Minister Sharad Pawar, they added.
In 2007, the government approved the New Pricing Scheme (NPS) Stage-III for urea units in the country. The scheme was originally effective from October 2006 to March 2010 and now it has been extended for three years. NPS-III scheme was based on cost of production for 2002-03.
The ministry is planning to take this proposal before GoM in its next meeting. The ministerial panel was set up to look into the pricing of urea.
During the first meeting of GoM in June this year, fertiliser companies had made a presentation before the panel and demanded a hike in subsidy by Rs 700 per tonne on the grounds of increase in their fixed costs.
Government has provided Rs 70,585 crore as fertiliser subsidy in this year budget, but allocation is not sufficient to meet the total subsidy requirement.
India produces about 22 million tonnes (MT) of urea and imports 8 MT to meet the shortfall.
Industry body FAI has recently said that another Rs 40,000 crore would be required for clearing the total subsidy payment including arrears of last year.
