This is an archive article published on January 31, 2024

Opinion Express View on government and non-urea fertilisers: Price of price distortion

Government's move takes fertiliser industry back to full-control era before introduction of nutrient-based subsidy system in 2010

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January 31, 2024 07:05 AM IST First published on: Jan 31, 2024 at 07:05 AM IST

The Centre’s fertiliser subsidy bill has more than trebled from Rs 81,124 crore to Rs 2,51,339 crore between 2019-20 and 2022-23. Even the current fiscal’s budget estimate of Rs 1,75,100 crore is likely to be overshot in the final numbers. Not for nothing that the Narendra Modi government wants to derive maximum mileage, political as much as economic, from this humongous spend.

Since November 2022, all subsidised fertilisers are being marketed under a common Bharat brand, with companies having to print this (along with the Prime Minister’s One Nation One Fertiliser scheme’s logo) on two-third space of every bag and leaving only the balance one-third for their own name, logo and other product information. Now, the Modi government has capped the profit margins companies can earn from sales of di-ammonium phosphate (DAP), muriate of potash (MOP) and other subsidised non-urea fertilisers. The maximum retail prices (MRP) of these fertilisers cannot be more than 8-12 per cent higher than their total cost of sales.

The government’s argument would be that when so much of taxpayer money is being spent on fertiliser subsidy, the benefits should also accrue to farmers. One way to ensure this is by making companies reveal their actual cost of production/imports, distribution and other expenses. Based on this self-assessed and duly audited cost data, they will be allowed to set MRPs that generate “reasonable” profit. Any unreasonable profit, in excess of 8-12 per cent, will have to be refunded with interest and adjusted against future subsidy payments.

In short, the current detailed cost monitoring and price control regime in urea will henceforth be extended to all other subsidised fertilisers. While urea is a controlled fertiliser — its MRP is fixed by the government — the likes of DAP, MOP and complexes (with varying nitrogen, phosphorus, potash and sulphur content) will also practically cease to be “decontrolled” fertilisers.

The flip side to the Modi government’s move is that it takes the fertiliser industry back to the full-control era before the introduction of the nutrient-based subsidy (NBS) system in April 2010. Fertilisers are basically food for crops. NBS was supposed to foster product innovation, with newer and better fertilisers providing more balanced nutrition. That dream didn’t materialise, as urea was excluded from NBS; its fixed MRP led to over-application, worsening nutrient imbalance and declining crop yield response. Farmer interest is better served by freeing up MRPs, encouraging balanced nutrient use and fertiliser products customised to different crop and soil-type requirements. The Rs 1,00,000-1,50,000 crore annual fertiliser subsidy can be converted into a direct income support scheme, be it on a per-farmer or per-hectare basis. Either way — India has about 10 crore farmers and 14 crore hectares net sown area — the benefits would be more than from distorted nutrient pricing.