Updated: January 20, 2015 12:00:55 am
The Centre is reportedly considering decontrol of urea over a period of three years, at the end of which retail prices would be totally market-determined, with farmers getting a fixed per-bag subsidy to be credited directly to their bank accounts. If this happens, it will probably be the most politically challenging economic reform the Narendra Modi government undertakes. Given the crash in global oil prices, decontrol of diesel was, politically, no big deal. If anything, the Centre has only undermined the spirit of decontrol by hiking excise duties, thereby preventing consumers from fully reaping the benefits of cheaper international crude. Urea decontrol, by contrast, is fraught with political risk. The current retail price of Rs 5,360 or $ 86 per tonne is way below the landed cost of $ 300 for imported urea. Even with a 50 per cent subsidy, farmers would need to pay roughly twice the amount they currently do — and in a context where minimum support prices (MSPs) for crops cannot be raised significantly.
This state of affairs can be blamed on the previous UPA dispensation. At a time when world agri-commodity prices were ruling firm, increases in MSPs could easily have compensated for higher production costs on account of urea decontrol. Farmers, in fact, barely protested when prices of all other fertilisers went up three-fold or more following their decontrol. Instead, the retail price of urea has been revised upwards by a mere 11 per cent since early 2002. Not only prices, even its imports continue to be subject to controls and “canalisation” through designated state-owned firms. The Centre’s annual fertiliser subsidy bill of around Rs 1,10,000 crore today — which includes unpaid liabilities — is almost equal to its entire Plan budget for agriculture, farm research and rural development.
The present government has the unenviable task of sorting out this mess. Asking farmers to pay more without expecting higher prices for their produce isn’t easy. But that is where communication matters. Farmers should know that the current retail prices would make urea prone to black-marketing, which is already happening. The fertiliser subsidy regime now is fiscally unsustainable both for government and industry, besides encouraging nutrient usage damaging for soil health. In the long run, the losers are the farmers themselves. Domestic urea plants closing down will not help them. Their interests will be better served if the monies saved from the fertiliser subsidy are redirected to agricultural research, rural roads, 24×7 power and broadband connectivity. Seen in this context, a three-year subsidy reform programme is eminently implementable — even politically.
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