The Hindu Business Line : Tilting at windmills

THE FERTILISER MINISTER's preoccupation with bringing urea distribution under total administrative control is difficult to fathom when more pressing issues pertaining to the fertiliser policy should be engaging his attention. A committee is to examine the impact the partial decontrol introduced by the previous Government has had on actual supplies, especially in deficit areas such as the North-East. This appears to be a futile exercise. If the intention is to ensure glitch-free fertiliser supply, it is best achieved by ironing out the problems of feedstock costs and availability, which have been the main reasons for the shortfall in nutrient output in recent times.

The gradual phase-out of allocations under the Essential Commodities Act was part of an incentive mechanism to fertiliser units under the "group-pricing" policy package outlined by the Expenditure Reforms Commission. The ERC's package was designed to make sure that urea producers eventually shook off their reliance on government support for finance and operations, and competed in a free market. In any case, to have the government micro-manage the fertiliser sector, to the extent of determining how many bags each producer will sell in each State, appears to militate against the basic tenets of economic reforms. The ball has been set rolling on the commission's package, with urea producers moving to a flat group subsidy from April 2003. Having implemented one part of the package, which forces producers to tighten their belts, it is only logical to implement the other that allows them greater flexibility to plan their marketing to curtail costs. There is as yet no hard evidence that distribution decontrol has actually resulted in supply glitches in specific pockets. And even if it has, these can be resolved without setting the clock back on distribution decontrol. Even in a decontrolled set-up, producers can be directed to ship fertilisers to areas low on supplies. They will do so willingly, if compensated for the transport cost. The commission had, in fact, anticipated such problems and recommended that the government set apart some Rs 200 crore from the fertiliser subsidy to meet the additional transportation costs for supplies to deficit areas.

It is true that both urea and phosphatic fertiliser producers have been operating at sub-optimal utilisation levels since last year. But this can be traced to escalating input costs and shortfalls in feedstock supplies throwing production schedules out of gear. With the government reluctant to hike selling prices, it may be difficult to prevent the rising input costs from inflating the subsidy bill. Some savings on subsidies can be squeezed out by hastening the transition of urea units to the next stage of the group-pricing regime and by sourcing more from low-cost producers. But the government must first tackle the stalemate on liquefied natural gas pricing and encourage substitution of costly naphtha with LNG. This will plug supply glitches by pepping up fertiliser output and at the same time yielding significant savings in the subsidy bill. The proverbial two birds with one stone.

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