Successive governments have blatantly glossed over reforms in the fertilizer sector for generations. Modi who was catapulted to power on the promise of pushing reforms and development had generated hope. Yet, during last 15 months in office, one only hears loud talk but no action on ground.
In this regard, four major pronouncements of Modi – dispensation need close scrutiny. First, the prime minister promised that every farmer has a soil health card [SHC] so that he knows how much nutrient he will need to apply for getting good crop yield and keep soil healthy and robust.
This by itself is a herculean task requiring cooperation of all state governments and authorities right up to the village level to ensure that millions of farmers spread in every nook and corner have SHC and all records digitalized for enabling them have quick updates.
But, a big nightmare is when soil analysis throws up a recommendation for applying more of phosphate [P] and potash [K] but the fertilizers carrying these nutrients viz., dia-ammonium phosphate [DAP], other complex fertilizers and muriate of potash [MOP] etc are too expensive and therefore, beyond the reach of majority of the farmers.
Currently, the maximum retail price [MRP] of DAP is 4 times the price of urea [main source of nitrogen [N] whereas MOP sells at over 3 times urea MRP. This is the prime reason as to why use of fertilizers is heavily tilted in favour of urea leading to greater application of ‘N’ and less of ‘P’ and ‘K’ [in contravention of soil needs].
The imbalance in MRP arises because government controls urea MRP at a very low level by heavily subsidizing it [by 50%-75% of cost] while keeping a tight leash on subsidy on DAP, MOP etc [hardly one third of cost is covered by subvention]. It does so on the pretext that latter are decontrolled [hence, manufacturers are free to fix price] whereas, former is under control.
For more than 3 years now, there has been a talk of bringing the policy dispensation for urea at par with those of P & K fertilizers by implementing nutrient based scheme [NBS] for urea [as recommended by Sharad Pawar committee in 2012] but no government has walked the talk. So, farmers are forced to live with imbalance in use.
Second, to combat diversion of urea for industrial use, government has told manufacturers to sell only neem coated urea which makes it un-usable in chemical factories. This is an impractical option. Who will do the policing of a mammoth 600 million bags [annual sales]? Even so, the order mandates only 75% of output to be neem coated which leaves a big chunk 150 million bags outside state surveillance.
The real reason for black marketing of urea is its ‘artificially’ low MRP which no political dispensation in the past had the guts to touch [for nearly one-and-a-half decade, price was not increased except once in 2010]. Unfortunately, even Modi has not mustered courage to hike it. Worse still, early this year, the cabinet decided to freeze it at existing level for 4 years till 2018-19.
Third, the government has announced its intent to implement direct benefit transfer [DBT] of subsidy on fertilizers in this very year itself. But, there is nothing on ground to make it happen in foreseeable future. The foremost requirement is to identify beneficiary farmers, open their bank accounts and seed them with Aadhaar card. This exercise has not even started. There are many imponderables in the way.
The states will need to update all land records [many of them may not even exist] and digitalize them. There are millions of ‘absentee’ land owners; in such cases, subsidy has to go to those actually tilling the land. They need to be identified. The government will also have to decide whether to give subsidy to all [as under extant dispensation] or restrict only to poor farmers. Any such decision can kick up a big political storm!
At present, subsidy is routed through 30 urea manufacturers who get compensated for excess of unit-specific cost over MRP under a warped system called New Pricing Scheme [NPS]. Now, if subsidy is to be given directly to farmers, NPS will have to go. Yet, under the new comprehensive urea policy announced in May, the government has decided to continue NPS for 4 years. In other words, DBT cannot come in till 2018-19.
Fourth, the government has proclaimed its commitment to revive all fertilizer plants under Fertilizer Corporation of India (FCIL) and Brahmaputra Valley Fertilizer Corporation of India (BVFCL). Their revival depends on timely commissioning of Jagdishpur-Phulpur-Haldia gas pipeline which will carry gas to Sindri (Jharkhand), Gorakhpur (UP), Barauni (Bihar) and Durgapur (WB). The project has been languishing for years. Though, last year, Modi directed Gas Authority of India (GAIL) to complete in 2 years, it remains to be seen whether his diktat will work.
There are a host of other thorny issues such as non-availability of land [Steel Authority of India which was roped in 2011 to revive Sindri decided to exit last year alleging delay in acquisition of land and getting various approvals], bringing in partners for proposed joint ventures [revival of Namrup IV unit of BVFCL is stuck due to difficulty in garnering 52% equity from private players] etc which threaten implementation of revival plans. Above all, the big question is whether the revived units [all at huge cost] will survive under a DBT dispensation which eventually has to come say, in 2018-19!
The government must overcome its reluctance to increase urea MRP [studies prove that increase up to 25% won’t have much impact on farmers]. It should dismantle NPS and go ahead with NBS for urea but fix subsidy [uniform] in a manner to prevent steep increase in price in one shot. Since, almost all urea plants are on gas and a uniform gas pricing policy is already in place, from producers perspective, transition to NBS will be smooth.
This will remove imbalance in prices of urea versus non-urea fertilizers and thus help in reducing imbalance in fertilizer use [SHC will then, make better sense]. This will also knock at root cause of urea diversion to chemical factories. Finally, this would pave the way for smooth transition to DBT. Revived units under FCI/ BVFCL should be made to stand up on their own through cost cutting and better efficiency.
Unlike the GST [Goods and Services Tax] or land bill, these policy changes lie entirely within the executive domain and Modi should not waste any time in kick starting the process now.