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Wednesday, Mar 20, 2002

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Industry & Economy - Fertilisers

Roll back fert price hike: Ajit

Harish Damodaran

NEW DELHI, March 19

AFTER LPG, pressure is mounting on the Centre to roll back the 5 per cent average fertiliser price increase announced in the Budget. And this time, it's none other than the Union Agriculture Minister, Mr Ajit Singh, who has taken up the cause.

He has shot off a letter to the Finance Minister, Mr Yashwant Sinha, calling for `withdrawal' of the hike. The Agriculture Minister has rested his case mainly on the fact that the Centre had brought down its total subsidy bill on indigenously produced urea from Rs 9,480 crore in 2000-01 to Rs 7,370 crore in 2001-02 (revised estimates), even without effecting any price hike in the previous Budget.

In fact, the revised estimate of Rs 7,370 crore turned out to be even lower than the initial Budget estimate of Rs 7,956 crore. "In the light of this experience, our attempt to reduce the fertiliser subsidy bill should be directed towards improving the efficiency of the fertiliser industry before additional burden is put on the farmers by way of higher fertiliser prices,'' Mr Singh has stated.

The 2002-03 Budget has effected a 5-per cent increase in the maximum retail price of urea (containing 46 per cent nitrogen) from Rs 4,600 to Rs 4,830 per tonne, while revising the same from Rs 8,900 to Rs 9,350 per tonne (up 5.06 per cent) for di-ammonium phosphate (DAP) and from Rs 4,255 to Rs 4,455 per tonne (up 4.7 per cent) for muriate of potash (MoP). Prices of various complex fertilisers have also been raised from Rs 6,620-8,520 per tonne to Rs 6,980-9,080 per tonne.

At current consumption levels, the price increases are expected to translate into an additional burden of around Rs 1,000 crore for farmers, including Rs 460 crore on urea, Rs 290 crore on DAP, Rs 200 crore on complexes and about Rs 40 crore on MoP.

According to Mr Singh, this extra mop-up was not in order, "particularly when concerns have been voiced about the plight of the Indian farmer such as the low and unremunerative prices for his output and also the lower government support that he gets compared to those in the developed countries''.

The Rs 2,110 crore reduction in the indigenous urea subsidy outgo during 2001-02 was mainly due to the Centre's move on November 5 to drastically reduce the retention prices for 13 urea plants, based on an `interim' re-assessment of their feedstock consumption norms to reflect more `realistic' levels. The price reductions, carried out on a retrospective basis with effect from April 1, 2000, are estimated to have generated savings of around Rs 950 crore.

Apart from this, the decision to link prices of feedstock (naphtha and furnace oil) supplied to urea plants to import parity prices from July 9, 2001 conferred savings of another Rs 1,200 crore.

For 2003-03, the Centre has budgeted the subsidy on indigenous urea at Rs 6,499 crore, which is Rs 871 crore below even the revised estimate for the current fiscal. The bulk of the reduction this time is expected to come from the increase in farm gate prices, as there is very little leeway for undertaking further rationalisation of retention prices.

Also, with international crude prices hardening, domestic oil companies would not be able to continue to supply feedstock at the current low levels.

But Mr Singh has argued in favour of further raising efficiency levels in the fertiliser industry, which would make it possible "to reduce the (overall) subsidy level as well as the sale price of urea to the farmers''.

Besides indigenous urea, the Centre has also budgeted a subsidy of Rs 505 crore on imported urea for 2002-03 (up from Rs 59 crore in 2001-02), with the subsidy on sale of decontrolled fertilisers slated to drop from Rs 4,515 crore to Rs 4,224 crore.

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