Fertiliser pricing needs rationalisation
A regime of uniform pricing of all fertilisers will probably ensure that the farmer buys the fertiliser/s which his crop actually needs rather than the cheapest (the most subsidised) fertiliser.
By KG Narendranath, TNN |
The government’s move, as suggested by the minister, Ram Vilas Paswan on Saturday, to subsidise only the nutrient content of fertilisers and thereby make available customised packages of fertilisers to farmers, is indeed sensible.
A regime of uniform pricing of all fertilisers will probably ensure that the farmer buys the fertiliser/s which his crop actually needs rather than the cheapest (the most subsidised) fertiliser.
Such a policy could also enable the more discerning farmer to selectively use nutrients for sustainable soil fertility. (The present fertiliser consumption pattern in India is very skewed. This is because farmers prefer to use controlled fertiliser urea to other fertilisers, causing nutritional deficiencies of the soil, which leads to its poor fertility profile and low farm productivity).
The minister has shot down the proposal that the subsidy sums be delivered directly to farmers, instead of routing them through the strained fertiliser industry, as is the current practice. He said the direct transfer model, suggested by many expert agencies and analysts, might not be practical.
The thinking of a group of ministers discussing these issues is also apparently that what are to be subsidised is far more important than how the subsidy is delivered, even though the leakage in the system is a serious problem.
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It may be recalled that in the last Budget, finance minister P Chidambaram had even announced a pilot scheme in one district of each state to give fertiliser subsidy directly to the farmer. (Inclusive of arrears, the subsidy bill is about Rs 50,000 crore this fiscal, according to industry estimates. It has been growing at 33% a year in the last three years). Therefore, imbalance in the use of fertilisers has been both the cause and effect of the spiralling subsidy bill and the resultant delays in the release of the subsidy amounts by the fiscally constrained government.
Even as the subsidy bills have been rising inexorably (due to rising cost of feedstock/raw materials, such as naphtha, natural gas, sulphur, phosphoric acid, rock phosphate etc), the farm productivity has largely stagnated. A vicious situation has been created—85% of the increase in subsidy bill in recent years is due to a rise in cost of production/procurement of fertilisers, and just 15%, to consumption growth.
While the domestic production of fertilisers is stagnating with no major investments in the last two decades, our dependence on imported fertilisers is on the rise. (One estimate is that 20% of the global tradeable surplus of urea, DAP and MoP is now used to bridge the supply crunch in India). The sad fact is that a chunk of the consumption is merely a fall-back option of farmers who can’t afford the fertilisers containing the right nutrients for the soil.
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The import surge is proving to be an extra burden on the exchequer, as Indian demand itself can now significantly change (increase) the global prices of major fertilisers. So, the externality of the fertiliser subsidy bills is now not only the increase in price of feedstocks like naphtha resulting from the hardening of crude oil prices, but increased imports of fertilisers as such.India has a natural import-dependence as far as phosphor and potassium are concerned. But a conducive investment climate could augment domestic urea capacities. With plenty of gas to be produced domestically in the next few years, this should be a viable option. (In fact, the new fertiliser investment policy aims at exportable surplus in urea by 2011-12).
But for all this to happen, the fertiliser pricing (and subsidy) policy should be rationalised. Mr Paswan’s proposal has the potential to take us to the solution for the problem. At present, Indian farmers over-use urea.
This has increased the nitrogen content in the soil in most of the farm lands in the country, seriously jeopardising fertility. Phosphatic and potassium fertilisers are not used to the required extent. A variety of micro nutrients are simply not used by a vast majority of farmers.
The proposed policy, if properly designed and implemented, could reverse the current trend of agriculture land becoming irreversibly infertile. The idea of a new regulatory authority for the fertiliser sector is welcome, too.
The proposed regulator, which will regulate the pricing and subsidy regime in keeping with the overall health of the fertiliser industry and the farm sector, would do well to take cue from the other post-liberalisation sectoral regulators, who, unlike their predecessors, don’t revel in being hostile to the market.
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