Smart fertiliser subsidy signals bold farm reform

In a bold move that will not just prune the humongous fertiliser subsidy bill but also change the face of agriculture,Prime Minister Manmohan Singh....

Written by Swaraj Thapa | New Delhi | Published: February 19, 2010 1:46:40 am

In a bold move that will not just prune the humongous fertiliser subsidy bill but also change the face of agriculture,Prime Minister Manmohan Singh,aided by several Cabinet colleagues,on Thursday brought in a nutrient-based subsidy (NBS) regime.

This will incentivise companies to innovate beyond a handful of products sold in the market presently and offer farmers choice based on soil needs. This is expected to trim the subsidy bill by about Rs 44,000 crore a year.

The NBS regime,approved by the Cabinet today,replaces the age-old product-based subsidy regime for fertilisers,and comes despite serious reservations by DMK and Trinamool Congress,key partners in the UPA government. DMK chief M Karunanidhi’s son M K Alagiri is the Chemicals and Fertiliser Minister.

Proceedings in the Cabinet took a rather curious turn when Alagiri first proposed the new regime in the meeting and then openly expressed doubts in writing about its timing. He requested his other DMK colleague in the Cabinet,Textile Minister Dayanidhi Maran,to read out a two-page note in English in which the DMK’s stand seeking postponement of the NBS was recorded.

But Finance Minister Pranab Mukherjee was keen that the new regime be put in place now. The country’s fertiliser subsidy has shot up by 530 per cent in the past five years and touched Rs 99,456 crore in 2008-09.

If the present system continues,the government estimates the subsidy bill to shoot up to Rs 1,73,000 crore in 2011-12. The NBS regime will save the government Rs 44,000 crore in subsidy every year.

It is,however,not just about lower subsidies. Under the existing regime,the government provides subsidy (the difference between the cost of production and the controlled sale price) only on 15 fertiliser products — urea,muriate of potash,diammonium phosphate,single super phosphate and 11 other complexes with defined phosphorous (P),nitrogen (N) and potassium (K) content.

Companies find it viable to market only these 15 products,stifling innovation and leaving no choice for farmers. So even though there are better fertilisers than urea with N content,urea is the most preferred fertiliser in India because its sale price is fixed at Rs 4,830 a tonne.

The Cabinet also approved a 10 per cent hike in urea prices to Rs 5,310 a tonne amidst doubts expressed by some other ministerial colleagues about its “adverse impact” on farmers. The NDA government had last attempted to revise urea prices up by 5 per cent in 2002,but had to roll it back after hectic lobbying by companies and protests.

The Prime Minister placated concerned ministers by agreeing to set up an inter-ministerial mechanism that will attend to farmers’ interests by cushioning rising farm inputs with enhanced minimum support prices. Information and Broadcasting Minister Ambika Soni said after the meeting that the new NBS had been approved after a full-fledged discussion.

Singh and other advocates in the Cabinet had braced themselves for opposition and were well prepared to push through the NBS regime. This was clear when Alagiri was forced to move the proposal despite reservations by his own party. “If he wanted it postponed,he should have never moved it,” remarked a Cabinet minister.

Reservations about the consequences of the new subsidy mechanism were also flagged by Railway Minister and Trinamool chief Mamata Banerjee who said farmer interests should not be hurt. Both Banerjee and the DMK ministers pointed out that elections were round the corner in their states and the Opposition should not be handed a handle to beat them with.

Similar concerns were raised by some Congress ministers too,but it was clear that the line-up in the Cabinet was clearly in favour of the new subsidy regime. Home Minister P Chidambaram,HRD Minister Kapil Sibal and Heavy Industries Minister Vilasrao Deshmukh were among those who spoke in favour of the subsidy regime,sources said.

The Prime Minister allowed all ministers present to express their views on the issue,resulting in a marathon two hour meeting. It was a tactical move by Singh,the sources said,as it left little scope for those present,especially from the allies,to turnaround later.

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