Category: Pricing policies & subsidies

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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Soil health: change NPK balance through incentives

Delivering the 38th edition of his ‘Mann ki Baat’, Prime Minister Narendra Modi said, “Can our farmers take a pledge to bring down urea use by half by 2022? If they use less urea in agriculture, the fertility of the land will increase. The lives of farmers will start improving.” Modi made the statement in the backdrop of ‘World Soil Day’ on December 5 and the deteriorating health of soil the world over, a key factor contributing to this being the excessive use of urea. The positive correlation between excessive use of urea and the erosion in soil health is an incontrovertible fact proven by several studies and finds repeated reference in official documents, including the Economic Survey that is...
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Correcting imbalance in fertilizer use – SHC alone won’t help

In 2015, prime minister, Modi had launched National Soil-Health-Card [NSHC] scheme with the objective of galvanizing farmers to replenish seriously degraded soils caused by excessive fertilizer use over several years. It seeks to promote a more judicious mix of fertilizers by testing soil samples of each farm household across the country on 12 parameters and prescribing recommendations on use. To test soil, the country’s cropped area is divided into grids of 10 hectares (ha) for rain-dependent farms and 2.5 ha for irrigated land. One soil sample from each grid is taken and test results are distributed to farmers whose lands fall under the relevant grid. These show which ingredients are depleted or are present in excess. Their soils need to...
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BAND-AID SOLUTIONS WON’T WORK

The cost of supplying fertilisers has increased due to a hike in cost of feedstock/raw materials, rupee depreciation, capital cost, transport and so on 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 fertiliser subsidy in the year 2016-17. It also approved that, in future, Department of Fertilisers (DoF) would avail the SBA with concurrence of Department of Expenditure (DoE). Faced with fertiliser subsidy arrears of around Rs 35,000 crore by end of financial year 2016-17, Union Minister for Chemicals and Fertilisers,  Ananth Kumar had in January, 2017 sought from the Finance Ministry SBA for Rs  20,000 crore. Against this, DoF...
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Urea – Modi’s clarion call may lead to its under-use

Addressing the 38th edition of ‘Mann Ki Baat’, the prime minister said, “Can our farmers take a pledge to bring down urea use by half by 2022? If they promise to use less urea in agriculture, the fertility of the land will increase. The lives of farmers will start improving.” Modi made the statement in the backdrop of ‘World Soil Day’ on December 5 and deteriorating health of the soil world over, an overarching factor contributing to this is excessive use of urea. The positive correlation between excessive use of urea and erosion in soil health is an incontrovertible fact proven by several studies and also acknowledged in the Economic Survey and other official documents. This is a phenomenon that...
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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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