The Hindu Business Line : Govt moots major changes in fertiliser subsidy policy

THE Government has suggested major changes in the fertiliser subsidy policy in its report on subsidies tabled in Parliament today, including setting up of plants in countries that are rich in natural gas and sharing the output between the host country and India as per predetermined agreements.

This is because natural gas is the cheapest feedstock for manufacture of urea and domestic availability of natural gas is low.

The report has also suggested that a system may be introduced with two different rates of subsidy for domestic producers and importers in the short run and a single rate in the medium term.

With the ever-mounting subsidy amount, it is necessary to phase out fertiliser subsidy to both the industry as well as farmers, the report said.

Another reason for the mounting burden of the subsidy is the lack of a mechanism to increase the farm gate price of urea at regular intervals; a system of periodic increases is required.

Fertiliser subsidy has increased from Rs 500 crore in 1980-81 to Rs 6,000 crore in the mid-80s and the Budget estimate for the current fiscal stands at 12,662 crore.

However, according to officials in the Fertiliser Ministry, there will be substantial increase during the current fiscal and the total fertiliser subsidy bill may go up by around another Rs 5,000 crore from the Budget estimate by the fiscal-end.

However, the increase will take place only in March, officials said, because the exact impact can be estimated only after the rabi crop.

The major increases would be on account of high ruling international prices of diammonium phosphate (DAP) and muriate of potash (MoP), as they are used extensively during the beginning of the rabi season.

Moreover, international prices of urea, which is used at a later stage, have also gone up significantly, which would result in higher fund outgo for the Government.

Fertiliser subsidy continues to be a major pull on the Exchequer because, according to the estimates done by the Expenditure Reforms Commission (ERC), phasing out of subsidy would increase the purchase prices for the farmers that may lead to a fall in foodgrain production by about 13.5 million tonnes annually.

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