As you sow, so should you pay

In this budget, the FM has allocated Rs 31,000 crore towards fertiliser subsidy. That is not only lower than what was demanded by the fertiliser department but, as members in the industry will tell you, also woefully inadequate given the unprecedented hike in raw material and input prices. Phosphoric acid, sulphur, rock phosphate and ammonia prices have risen manifold over the last two years. The industry contends that the actual subsidy bill may be twice as big — nearing Rs 60,000 crore — a familiar number, since, to put it in perspective, it equals the entire farmer debt relief package which the finance minister has so heroically announced!

If one were to approach this situation cynically, one could argue that if we can afford fertiliser subsidy in our low growth era, then we will be able to do the same today despite its impact on the long-term fiscal health of the country. But if we put aside the question of the size of the subsidy bill, we might view this industry as strategically important to India’s agricultural growth. We could also acknowledge that the magic 4 per cent agriculture growth number that we often talk about will demand a dynamic fertiliser industry behind it.

To begin with, the sector is facing a chronic shortage of gas and as a result plants are lying idle. The situation is so bad that the power ministry and fertiliser ministry are at loggerheads over which of them should receive gas on a priority basis. Several plants have also shut down on account of the unavailability of raw materials, in particular phosphoric acid, which is a key ingredient in producing diamonium phosphate. Furthermore, large sums of money are owed to both private and cooperative sector companies, which cannot make business decisions in this climate of policy uncertainty. The more efficient players are, to their credit, seeking joint ventures abroad to address the problem of raw material and gas availability, but they need a comprehensive long-term vision to further propel them. The international battle for resources — as we have seen with oil — demands a visionary and pragmatic government, one that does not hide behind the excuse of political compulsions, no matter how serious. And yes, while it is true that India is the second largest consumer and producer of fertiliser after China, such status means little. We now need to produce more efficiently and consume in a more sustainable way.

Fortunately, a blueprint for reform does exist. Months ago, there was talk of a switchover from a cost-based subsidy regime to a nutrient-based one. While this has been agreed upon in principle, no specifics have been declared. Sustainability of fertiliser use and its impact on foodgrain production hinge on this change. Similarly, it was declared that an independent price regulator was to decide on fertiliser pricing. This too has not happened yet.

We are no longer in the era of price control — the right pricing, as painful as it may be in the short term, is needed to create the right incentives. There has also been talk of phasing in an increase in MRP over time, but nothing has been done so far. The future of our farmers, our taxpayers and of this key industry continues to hang in balance. Three ministries — finance, agriculture and fertiliser — know this well. They must now act, and the political establishment must let them.

The writer is a research analyst with a fertiliser company vinatidevgmail.com