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.
