The government is considering a proposal to raise the price of urea, the fertiliser most used by its farmers, by at least 10 per cent in order to contain huge subsidy costs that are straining the budget, government and industry officials said.
Fertilisers minister Ananth Kumar has backed the measure, sources said, bolstering its chances of being implemented. Two options are under consideration; either the price hike could be included in the budget in July or it could be approved by the Cabinet, the sources said.
The first major price hike in four years would mark an important step by Prime Minister Narendra Modi’s new government towards cutting wasteful use of urea and easing fiscal pressures resulting from a weak economy. It would boost the relative appeal of potash and phosphate fertilisers that India imports in bulk from North America and the former Soviet Union, and whose domestic selling prices have been allowed to rise since 2010.
But the measure could also put upward pressure on food prices, compounding concerns that a sub-par monsoon could hit this year’s summer crops. The government on Monday declared fighting food price inflation its top priority.
“A two to three per cent rise in urea prices won’t make any meaningful difference in subsidy allocation. We are pitching for at least a 10 percent hike,” said a government official.