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Friday, February 26, 2021

Significant increase in fertiliser subsidy as Budget sidesteps reform

Until recently, the Centre was following a "no denial" policy; anybody could purchase any quantity of subsidised fertilisers through point-of-sale (POS) machines with retailers.

Written by Harish Damodaran | New Delhi |
Updated: February 2, 2021 8:10:50 am
There is no increase in the basic maximum retail price (MRP) of urea—which was last raised from Rs 4,830 to Rs 5,310 per tonne in April 2010—or bringing it under a flat per-tonne nutrient-based subsidy system similar to that for other fertilisers.

Against the background of the ongoing agitation against the three farm laws, it isn’t surprising that the Union Budget has not proposed any radical reform of the existing fertiliser subsidy regime.

There is no increase in the basic maximum retail price (MRP) of urea—which was last raised from Rs 4,830 to Rs 5,310 per tonne in April 2010—or bringing it under a flat per-tonne nutrient-based subsidy system similar to that for other fertilisers.

The fertiliser industry would, however, be relieved to see its past subsidy payment dues from the Centre getting cleared in one shot. The revised estimate of fertiliser subsidy for 2020-21, at Rs 133,947.30 crore, is way above the originally budgeted Rs 71,309 crore.


“The extra Rs 62,638 crore should help wipe out all outstanding subsidy arrears, thereby enabling companies to start on a clean slate,” said Satish Chander, director-general of the Fertiliser Association of India. For the coming fiscal, the Budget has provided Rs 79,529.68 crore, which is about Rs 8,221 crore more than for 2020-21. While that should ordinarily suffice, one source of uncertainty could be international prices.

Between October 2020 and January 2021, the average landed (cost plus freight) price of imported urea has risen from below $275 to over $321 per tonne, while similarly going up for di-ammonium phosphate (from $394 to $477), muriate of potash ($245 to $258), ammonia ($281.5 to $302), and sulphur ($85 to $136). If global prices of fertilisers and intermediates continue to harden, that could put pressure on the subsidy bill in the months ahead.

The limited political headroom for revising prices upwards, especially of urea, has led the government to explore alternative means of containing its overall fertiliser subsidy bill. That includes capping the number of subsidised bags that individual farmers can buy.

Until recently, the Centre was following a “no denial” policy; anybody could purchase any quantity of subsidised fertilisers through point-of-sale (POS) machines with retailers. This allowed for bulk buying even by non-farmers. In August 2020, a limit of 100 bags—the most that a person could buy at a time—was introduced. At the same time, there were no curbs on how many times anybody could buy in a month or during a full crop season.

From January 15 onwards, the Centre has imposed an upper limit of 50 bags per month per person. Nobody can purchase more than this quantity of subsidised fertilisers in a given month against his/her Aadhaar. (Buyers are now required to furnish these against their transactions that are captured on the POS devices).

The restrictions on the number of bags that can be bought—plus an exercise launched to identify the “top 20” urea purchasers of each district in 22 major consuming states—has already yielded results. As the accompanying table shows, retail fertiliser sales grew by double-digits year-on-year every month between November 2019 and July 2020.
But thereafter, they have posted negative growth, except in October.

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