Category: Alternative policy scenario

Urea subsidy – price for populism and greed

With pressure building on union budget, it is time to take a re-look at fertilizer subsidy which was allocated Rs 70,000 crores during 2017-18 and is a major factor contributing to high fiscal deficit. Here, we focus on urea – a major source of nitrogen – which accounts for over 70% of total subsidy. Subsidy on each ton of urea produced/imported and sold to farmers is the excess of cost of production/import and distribution over maximum retail price [MRP] controlled by government at a low level. Of the nearly 24 million tons of urea produced in India, over 80% is based on use of natural gas as feedstock/fuel. Of the total gas requirement, 2/3rd comes from domestic production and 1/3rd...
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Fertilizer subsidy arrears – shun band-aid solutions

The Cabinet Committee on Economic Affairs (CCEA) has accorded the ex-post facto approval for special banking arrangement [SBA] for Rs 10,000 crore for payment of outstanding claims on account of fertilizer subsidy in the year 2016-17. It also approved that, in future, Department of Fertilizers [DoF] would avail the SBA with concurrence of Department of Expenditure [DoE]. Faced with fertilizer subsidy arrears of around Rs 35,000 crore by end of financial year 2016-17, the union minister for chemicals and fertilizers  Ananth Kumar had in January, 2017 written to the finance minister asking for SBA for Rs 20,000 crore to provide loan to cash starved fertilizer companies at reasonable rates. Against this, Department of Fertilizers [DoF] was allowed to raise a...
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OVERCOMING THE REFORM CHALLENGE

If the Government is serious about making a dent on subsidy, it should dismantle controls and give subsidy directly to target beneficiaries (the poor) under direct benefit transfer. This will pave the way for many players, increase supply, offer more choices and foster competition In the Medium Term Expenditure Framework (MTEF) statement (a statutory requirement under the Fiscal Responsibility and Budget Management Act, 2003) presented by the Modi Government, expenditure on fertiliser subsidy during 2018-19 and 2019-20 was kept unchanged at Rs 70,000 crore. The provision was the same in this year’s budget. Allocation for food subsidy has been increased from Rs 145,000 crore  during 2017-18 to Rs 175,000 crore during 2018-19 and further to Rs 200,000 crore in 2019-20....
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Fertilizers and food – reforms put in deep freezer

In the medium-term expenditure framework statement [MTEFS] – a statutory requirement under the Fiscal Responsibility and Budget Management Act [FRBM] [2003] – presented by Modi –government, the spend on fertilizer subsidy during 2018-19 and 2019-20 has been kept unchanged at Rs 70,000 crores being the provision in the budget for current year 2017-18. The allocation for food subsidy has been increased from Rs 145,000 crores during 2017-18 to Rs 175,000 crores during 2018-19 and further to Rs 200,000 crores in 2019-20. These numbers are completely out of sync and in contradiction with the government’s commitment to ‘rationalize’ and ‘target’ both fertilizer and food subsidy [i.e. give these to the poor/deserving only] – made in successive budgets as well as the...
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APATHETIC ATTITUDE RUINING BUSINESS

The fertiliser industry, in India is slumping due to the burden on investors to sell at low price and delayed payment of subsidy dues by the Government Last year, Tata Chemicals Limited (TCL) sold its urea business viz plant in Babrala, Uttar Pradesh to Yara Fertilisers India Private Limited [YFIL] — Indian arm of Norway’s Yara lnternational ASA — for a sum of Rs 2,670 crore. This was a distress sale. Then, it had also alluded to selling its complex fertiliser business (including Haldia unit). Now, the TCL are in advanced negotiations with India-born Indonesian billionaire Prakash Lohia of Indorama Corporation to sell Haldia unit — on a slump sale basis for Rs 600-800 crore. The sale will include the plant and other fixed assets and...
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Fertilizers – ‘controls’ trigger one more exit

Last year, Tata Chemicals Limited [TCL] sold its urea business viz. plant in Babrala, Uttar Pradesh with 700,000 tons ammonia and 1.2 million ton urea capacity to Yara Fertilizers India Private Limited [YFIL] – Indian arm of Norway’s Yara lnternational ASA – for a sum of Rs 2670 crores. This was a distress sale fetching the company only 2/3rd of the money so far invested. Then, it had also alluded to selling its complex fertilizer business [including plant at Haldia]. Keeping their promise, the Tatas are in advanced negotiations with Indian-born Indonesian billionaire Sri Prakash Lohia of Indorama Corporation to sell the Haldia unit – on a slump sale basis for Rs 600-800 crore. The sale will include the plant...
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Self-sufficiency in fertilisers or building castles in air?

Union Minister for Chemicals and Fertilisers Ananth Kumar has announced the government’s decision to revive five closed plants of Fertiliser Corporation of India (FCIL) and Hindustan Fertiliser Corporation Limited (HFCL). They are: Talcher (Odisha), Ramagundum (Telangana), Sindri (Jharkhand), Barauni (Bihar) and Gorakhpur (Uttar Pradesh). To be commissioned by 2020-21, their revival is expected to add 7.5 million tonnes (mt) of urea capacity. The minister has also exuded confidence that the decision for mandatory neem coating of urea (2015) will result in 10% improvement in the efficiency of fertiliser use. Taking urea consumption of about 33 mt annually, this will save about 3.3 mt. He also referred to steps for increasing utilisation of the existing capacity. This has led to increase...
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Fertilizer reforms – time for big bang

An official from the department of fertilizers is reported to have said that by putting 45 kg of urea in a bag, it is possible to achieve 10% saving in consumption. His logic is that farmer calculates requirements on per acre basis. He needs 90 kg which can be met with 2 bags of 45 kg each against current practice of using two bags of 50 kg each. Are we to infer that until hitherto, 10% urea was going waste as he was forced to buy 100 kg – against need of 90 kg – and that loss will now be prevented with use of 45 kg bag? How come such an innovative idea did not strike policy makers earlier?...
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Will DBT work?

The version of DBT being tried in pilot districts is flawed. It will provide no proper assessment of the scheme’s effectiveness. Alluding to the direct benefit transfer (DBT) of fertiliser subsidy, in budget speech for 2016-17, Finance Minister Arun Jaitley had stated: “We have already introduced DBT in LPG. Based on this successful experience, we propose to introduce DBT on pilot basis for fertiliser in a few districts in the country with a view to improving quality of service delivery to the farmers.” The focus on the DBT has its link to a revelation made in Economic Survey (2015-16). It stated that “24% of the fertiliser subsidy is spent on inefficient producers, 41% is diverted to non-agricultural uses and 24%...
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Neem-coated urea: Why is Narendra Modi govt waiting for 5 years to make India self-sufficient in fertilisers?

Addressing the 9th Global Agriculture Leadership Summit on September 8, 2016, chemicals and fertiliser minister, Ananth Kumar proclaimed that neem-coating of all urea supplies meant for use by farmers has resulted in elimination of diversion to chemical industries and smuggling to neighbouring countries. If, the claim is true, it will have a profound impact on the larger picture of demand-supply balance, self-sufficiency in fertilisers, dependence on import, subsidy pay-out, demand for hydrocarbons especially gas and impact on the environment. The total consumption of urea is about 30 million tonnes annually, including 22 million tonnes indigenous and 8 million tonnes of imported product. Since, all of this is sold by manufacturers/importers at a low ‘controlled’ price, excess of cost of production/import...
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