Urea under NBS: Cabinet note yet to tbe circulated

NEW DELHI: The government's note to the Cabinet Committee on Economic Affairs ( CCEA) on the key issue of bringing urea the country's most subsidised, cheapest and most used fertilizer under the Nutrient Based Subsidy or NBS scheme is yet to be circulated to relevant ministries, although approval for the proposal came almost a month ago from a ministerial panel.

In early August, the Group of Ministers (GoM) headed by finance minister Pranab Mukherjee approved the recommendations o the Saumitra Chaudhuri panel on urea pricing and that it should be decontrolled to the extent of 10% initially. The GoM also decided that urea should be brought under NBS a move long await ed for by industry and expected to peg the Centre's subsidy bill noticeably even while gradually increasing price pressure on the end user or farmer by October 1. That gives the DoF barely a month to circulate the Cabinet note on the subject to relevant ministries.

"The CCEA approval has to come soon in order that urea is included in the NBS starting October 1. There is still another month to go and the Cabinet note will be circulated in time," a DoF official maintained. The GoM decision, hailed as a path-breaking one, has to be approved by the CCEA to become policy and rank urea alongside other decontrolled fertilisers already under the NBS including DAP, MoP and a variety of complexes.

This means the fertiliser subsidy will shift from per-tonne of the product to its nutrient content, thereby impacting on the soaring fertiliser subsidy bill of the government.. Under the new dispensation__it paves the way for total decontrol of nutrietn pricing eventually__, the fertiliser industry will be free to fix what it reckons is a reasonable market price for urea. In addition, the move is expected to increase domestic urea production significantly and ring in investment into the long time moribund sector.

For the first year, the hike in MRP, according to experts, could be as high as Rs 500/tonne at the farmgate level. In addition, MRP would also pass on all taxes, including 1% excise duty, state VAT and higher feedstock - or, gas - price. "Of course, if the government perceives the hike in MRP as very steep, it will have to increase the nutrient subsidy given to industry," FAI head Satish Chander told ET.

The ministerial panel, while capping the MRP hike on the current price of Rs 5310/tonne at around 10% initially, also approved suggestions on gas pooling, which will make the key feedstock available to all producers at the same price.Under the proposed policy, a subsidy of Rs 4,000 per tonne would be given to gas-based urea plants.Naptha-based urea plants would get a higher subsidy, however, besides a three year grace period for conversion to gas as feedstock.

Budget estimates of fertiliser subsidy for 2011-12 are pegged at Rs 49,998 crore, which is lower than last year's RE of Rs 54,976 crores. Of this, urea susbidy alpme was pegged at Rs 21,476 crore last year. This year, it is estimated at Rs 20,291 crores.