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The Government’s decision to bring back price controls in non-urea fertilisers – under the guise of preventing ‘undue profiteering’ by companies – has been prompted largely by the huge increase in their rates under the new nutrient-based subsidy (NBS) system.
Between its introduction in April 2010 and the last rabi season, the maximum retail price (MRP) of di-ammonium phosphate (DAP) rose from Rs 9,350 to around Rs 24,000 a tonne, while similarly going up from Rs 4,455 to Rs 17,000 for muriate of potash (MOP) and from Rs 7,197 to Rs 22,000 for the popular NPK complex fertiliser 10:26:26.
On the other hand, since urea remained outside the NBS and prices still determined by the Government, its MRP rose only marginally from Rs 4,830 to Rs 5,365.
Reasonable MRP
But the Government has from April 1 gone back to fixing what it is terming as ‘reasonable MRPs’. These have been determined at Rs 22,500 for DAP, Rs 16,000 for MOP and Rs 19,590 for 10:26:26 complexes – lower than the rates at which they were selling in the last rabi season. “At a time when the rupee has crashed against the dollar, directing us to reduce MRPs by specified amounts is something that is really going to kill companies”, an industry source said.
According to the source, what the Government has done is to take assumed reference prices as prevailing in the last rabi season at the exchange rates at that point of time.
“They have factored in the lower international prices over the last few months. But thefact is since March-end, the rupee, too, has fallen from 54.4 to 59-to-the-dollar or nearly eight per cent. Every one rupee fall in the exchange rate raises the landed cost of DAP alone by Rs 500”, he said.
Moreover, the latest actions go against the NBS policy that envisaged the Government providing companies a fixed subsidy on each product and leaving the fixation of MRPs to them.
Simultaneously, the Government would also work towards a system for transferring the fertiliser subsidy directly to farmers, paving the way for total decontrol.
“Going back to fixing MRPs will only backfire, given how volatile the exchange rate and global fertiliser and raw material prices are.
This is something only companies can really do, taking into account day-a-day market dynamics”, the source said.
The Government’s contention, though, is that the industry has been using the freedom given to fix MRPs, while also availing itself of subsidy, to “indulge in undue profiteering”.
Audit compliance
The Department of Fertilisers has, in fact, sought detailed costing data in a six-part prescribed format from each company for every year from 2010-11.
Submission of such data, intended for purpose of monitoring the ‘reasonableness’ of the MRPs fixed by them, has been made mandatory for future subsidy claims.
“They have even asked for such data on a monthly basis from 2012-13, including on overheads allocation, profits reconciliation, etc and to be certified by a cost auditor.
“ Not every company maintains such accounts on a monthly basis”, the source pointed out.
Claiming that seeking detailed cost data from companies went against the principle of NBS, the industry representative said: “We don’t want any subsidy. Let the Government give it directly to farmers and allow us to price our product based on market dynamics”.
> vishwanath.kulkarni@thehindu.co.in
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