Agri Business

Centre's fertiliser subsidy rationalisation plans go haywire

Harish Damodaran New Delhi | Updated on February 22, 2011


High global prices, along with electoral compulsions, have put a pause to the Centre's plans of rationalising fertiliser subsidies.

The Department of Fertilisers had, on November 19, announced sharp cuts in subsidy rates on individual nutrients – nitrogen (N), phosphorus (P), potash (P) and sulphur (S) – that go into various non-urea fertilisers, with these effective from April 1, 2011 (i.e., the ensuing fiscal).

The concession on N was slashed to Rs 20.111 a kg (from Rs 23.227), with these correspondingly being lowered from Rs 26.276 to Rs 20.304 for P, from Rs 24.487 to Rs 21.386 for K, and from Rs 1.784 to Rs 1.175 for K.

Subsidy rates

If the proposed subsidy rates were to be implemented from the coming fiscal, the concession payable to companies on di-ammonium phosphate (DAP) – containing 18 per cent N and 46 per cent P – would stand reduced from Rs 16,268 to Rs 12,960 a tonne.

Similarly, for muriate of potash (MOP, with 60 per cent K), the subsidy would fall from Rs 14,692 to Rs 12,831, just as it would for other fertilisers covered under the nutrient-based subsidy (NBS) regime instituted from the current fiscal.

But with the hardening of international prices – plus forthcoming assembly elections in Tamil Nadu, West Bengal, Kerala and Assam, which make retail price increases politically unpalatable – it looks certain that the proposed higher subsidy rates will not take effect from 2011-12

The NBS rates for the current fiscal were benchmarked to landed prices of urea (for N), DAP (for P), MOP (for K) sulphur (for S), which were taken at $310, $500, $370 and $190 a tonne, respectively. For arriving at the 2011-12 NBS rates, the benchmark global prices were assumed at lower levels of $280, $450, $350 and $125 a tonne.

“These rates were totally unrealistic vis-à-vis the prevailing international prices. Imported urea today will not land at below $ 400 a tonne, while it would be $620 for DAP, $420 for MOP and $220 for sulphur,” sources said.

“If the concession rates are set way below these levels and companies are also not allowed to charge higher farm-gate prices, there will be no incentive to import. That could impact availability for the new kharif planting season. The situation could be serious in DAP, where not a single grain has been contracted so far,” they added.

Keeping these in view, a Group of Ministers under the Finance Minister, Mr Pranab Mukherjee, is understood to have raised the benchmark prices for computing the NBS rates for 2011-12 to $350 a tonne for urea, $580 for DAP, $390 for MOP and $180 for sulphur.

Based on the revised benchmark prices, the new NBS rates (which are yet to be notified) are likely to be Rs 27.366 a kg for N, Rs 29.372 for P, Rs 24.577 for K and Rs 1.69 for S. The subsidy on each tonne of DAP and MOP sold would, accordingly, work out to Rs 18,437 and Rs 14,746. These are higher than even the existing levels and would, in turn, translate into increased fertiliser subsidy outgo for the Centre.

Published on February 22, 2011

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