Cabinet rejects proposal to bring down urea prices

The views of the COS were endorsed by the cabinet in a subsequent meeting. Well placed sources said that the agriculture minister C Mishra wanted the price of urea reduced as a quid pro quo for slashing subsidy levels in di-ammonium phosphate (DAP). The assumption being that savings in subsidy on DAP account could then be utilised to compensate for the Rs 100 per tonne cut in the price of urea. The cut, it wasargued, would also go to practically make up for the 10 per cent increase in the price of urea ordered by the United Front government in February, 1997.

The minister also thought that a urea price reduction can be utilised in political terms in the ensuing general elections.

The COS, however, argued that the February price hike in urea did not have an adverse impact on demand: consumption was expected to remain at the earlier levels of around 20 million tonne per annum. The price increase was well absorbed by the market. Therefore, there was no justification to reduce the price of urea at this juncture. Moreover, flip flops on the price front — a cut barely 11 months after a steep hike — would send confusing signals to the market, it was claimed.

The current subsidised price of urea is Rs 3,600 per tonne and the total subsidy amount shelled out by the government is a whopping Rs 8,000 crore. Around Rs 6,200 crore is on account of subsidy on domestic production and the rest on imported urea.

The COSalso argued that soil agronomics would be adversely impacted in case of a price cut in urea. As it is, the steep increase in the prices of potassic and phospatic fertilisers after their decontrol five years ago had forced a fall in consumption, leading to highly skewed agronomics.

Consumption of nitrogenous fertilisers went up at the expense of other crop nutrients.

Disturbed agronomics forced the government to introduce an ad-hoc subsidy scheme, directly for consumers, on DAP and murate of potash (MOP). In 1996, the subsidy amount were hiked to 3,000 per tonne on domestic DAP and Rs 1,500 on imported DAP while MOP (all of which is imported) was provided a concession of Rs 1,500 per tonne. The subsidy on other complexes were increased proportionately, depending upon their phosphatic and potassic contents.

In April, 1997, the subsidies went up further — to Rs 3,750 on domestically produced DAP and Rs 2,250 per tonne on imports while, in MOP, the subsidy level was Rs 2,000 per tonne.