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Economic deform

Ordering fertiliser firms to cut prices is yet another instance of the Centre’s anti-reform moves in agriculture

By: Editorial |
Updated: July 8, 2016 12:15:22 am

That agriculture is the least reformed sector in India even after 25 years of liberalisation is a known fact. Worse, the past year or so has witnessed regression, with stockholding limits on sugar and pulses, export restriction on onions, and controls on prices and royalty fees on Bt cotton seeds bringing back memories of the inspector raj of the 1970s. Union Minister Ananth Kumar’s statement on Monday that fertiliser companies have “agreed” to slash retail prices of di-ammonium phosphate (DAP), muriate of potash and complex nutrients by Rs 2,500-5,000 per tonne only adds to the list. Whether for political reasons or otherwise, the minister seems to have ignored that all non-urea fertilisers are decontrolled and their prices are now set by companies themselves. Making them “agree” to reduce prices sets the clock back on reforms. Moreover, it goes against the Competition Act, which does not allow companies to meet and agree on market prices either with each other or with government officials.

Of course, in the case of fertilisers, the Centre can argue that it is paying a subsidy to companies on every bag that they are selling to farmers. It has every right, therefore, to ensure that the latter are not being overcharged. But here, companies are not being accused of charging high maximum retail prices; rather they are being told to “agree” to reduce them when the scope for it is limited. It is true that international prices of fertilisers have fallen. Imported DAP, for instance, is currently selling at around $ 350 per tonne, $ 50 lower than 4-5 months ago. But the gain from this Rs 3,400/tonne decline has been pocketed entirely by the Centre. If it was keen to pass on the benefits of softening global prices to farmers, the per-tonne subsidy on DAP could very well have been retained at earlier levels. Instead, it has been reduced by Rs 3,405 per tonne and the fertiliser minister still expects the industry to cut retail prices by another Rs 2,500 per tonne.

What is really required in fertilisers is total price decontrol and free imports extending to urea as well. This can be coupled with a flat per-hectare subsidy payable directly to all farmers against their purchases of up to a certain number of bags annually. Such a regime will be equitable and also conducive for balanced fertilisation, as against the current distorted pricing-cum-subsidy policy that encourages overuse of urea and makes farmers worse off in the long run.

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