The Centre’s move to usher in a ‘One Nation One Fertiliser’ regime, wherein all fertiliser manufacturers will be required to sell their products under a single ‘Bharat’ brand, appears not well thought through just as it will also be tough to implement. The policy, if enforced, could prove a serious impediment to India’s bid for Atmanirbharta in fertilisers, as it may actively discourage private players from committing to new projects in the coming years. With almost every aspect of fertiliser manufacturing controlled by the government, the sector already has very few private players who have survived the vicissitudes of whimsical policy-making.

The concept note proposing to require all urea manufacturers to sell their products under a single brand of Bharat Urea, seems to be motivated by the good intention of pruning the subsidy bill that’s now close to ₹1.5 lakh crore. The selling price of urea is statutorily capped at 10-20 per cent of production costs. Under the New Investment Policy 2012, urea units can be set up with the government providing subsidy support to manufacturers based on production costs plus a 12 per cent assured return on equity. This is meant to enable producers to sell urea at artificially low prices. An additional freight element was added to this subsidy to help manufacturers ferry their products to the end-user. The new policy now argues that as urea is essentially a commodity with negligible differentiation between players, there’s no real need for producers to transport their fertilisers cross-country. It reckons that if manufacturers stop selling urea under individual brands, there would be no need for an IFFCO to move its urea from UP to Rajasthan or for a Chambal Fertilisers to sell in UP, thus saving on freight subsidies of about ₹3,000 crore a year. The note however does not factor in the deleterious impact that completely commoditising a manufactured product could have on players’ motivation to remain in business. With selling prices capped and every aspect of operations — from product pricing to cost structure to geographical distribution and sales — micromanaged by the government, urea manufacturing is already a highly unattractive business for any profit-oriented player to be in. Many private players such as the Tatas, and Indo Gulf Fertilisers have exited the business in recent years. Shutting the door on even basic value-addition by way of branding, may well be the last straw on the camel’s back.

For the Centre to reap material savings in its subsidy bill, a far simpler solution exists. It can deliver the subsidy directly to farmers, decontrol urea, and leave the pricing to market forces. With Direct Benefit Transfers now established as a workable way to deliver leakage-proof subsidies to targeted beneficiaries, the Centre must look to transition urea to a DBT regime that reimburses small farmers for their actual fertiliser use.