The political fallout of higher urea price can be managed more easily than diesel/LPG rate rationalisation.
Having moved forward on reducing losses of oil companies on diesel sales – even if total price deregulation is still far away – the Government next needs to act quickly on fertiliser subsidies. The problem is no less serious on this front, with fertiliser firms being owed Rs 22,000 crore by the Government till December. This is over and above the Rs 65,000 crore it has already provided for in 2012-13. Adding another Rs 11,000 crore of under-recoveries for the current quarter will take the total dues for the fiscal to a whopping Rs 33,000 crore. It is for the Government to decide whether to clear these dues – which would take the total fertiliser subsidy bill to almost Rs 100,000 crore – or allow the industry to bleed the way the oil companies do. Both being undesirable, it leaves the third option of rationalising prices paid by the farmers.
Thankfully, this process can be achieved more painlessly than it was for diesel or domestic LPG, where sharp one-way price hikes are seemingly the only way out. In the case of fertilisers, the entire problem can be traced to just one product: urea. Its farmgate price has been raised only marginally – from Rs 4,830 to Rs 5,365 a tonne – since April 2010, when the rates of all other fertilisers were decontrolled. These have, as a result, gone up 3-4 times even with fixed nutrient-based subsidies: From Rs 9,350 to Rs 24,000 for di-ammonium phosphate (DAP) and from Rs 4,455 to Rs 17,000 for muriate of potash. It has also led to farmers sharply cutting down on their consumption. Companies alone are now holding an estimated 1.1 million tonnes (mt) of DAP and 0.9 mt in their godowns. Besides, there is another 2.6 mt of DAP and 1.9 mt of complexes lying with the trade, which farmers are not lifting. This is happening even as urea is being black-marketed, reportedly at Rs 7,000 a tonne or more.
The solution is, therefore, blindingly simple. The Government should straightaway raise the retail price of urea by Rs 5,000 a tonne. It could soften the adverse political impact of this through a higher subsidy on non-urea fertilisers, enabling them to be sold cheaper by Rs 1,500-2,000/tonne. Farmers will, then, be forced to consume less urea and apply more of other fertilisers, thereby improving crop yields through better soil nutrient balance. Since India imports over a quarter of its urea, which also accounts for more than half of the country’s fertiliser consumption, the above price rationalisation can deliver both fiscal and foreign exchange savings. Given the large inventory of DAP and complexes with the industry/trade, the Government could even consider limiting the subsidy on imported fertilisers, which will additionally help cool down global prices. The present fiscal and foreign exchange crisis can well be turned into an opportunity for rationalisation of the fertiliser subsidy regime to benefit the Government, industry and, not the least, the farmer.