On May 13, 2015, the Press Information Bureau (PIB), Government of India, Ministry of Chemicals and Fertilizers issued a press release on “Approval to comprehensive New Urea Policy, 2015” and “Nutrient Based Subsidy rates for Phosphate and Potash fertilizers for the year 2015-16”.
A major announcement in the aforementioned release was “Movement plan for P&K fertilizers has also been freed to reduce monopoly of few companies in a particular area so that any company can sell any P&K fertilizer in any part of the country. Rail freight subsidy has been decided to be given on a lump sum basis so that companies economize on transport”
When, seen in the backdrop of decontrol of all P&K fertilizers and subsidy abolition way back in August (25th), 1992, any talk now of freeing movement controls or granting freight subsidy on lump sum basis [read ‘uniform’] sounds bizarre! But, it is true. Despite de jure decontrol, de facto, these fertilizers have been under control during the last more than 2 decades sans a miniscule period of 5 weeks [August 25, 1992 to September 30, 1992].
Almost immediately after that historic decision, from October 1, 1992 subsidy was resurrected and under its garb, control on maximum retail price (MRP) was revived and continued until March 31, 2010. On April 1, 2010, while introducing Nutrient Based Scheme (NBS) [under it, uniform subsidy expressed as Rs per kg of N,P,K & Sulfur is given to all units], manufacturers were granted freedom to fix MRP. But, on June 26, 2013 this was taken away.
The manufacturers were not even spared freedom of movement and distribution as 20% of these fertilizers produced/imported in India were covered in the Movement Control under the provisions of the Essential Commodities Act, 1955 (ECA). Department of Fertilizers (DoF) regulates movement of these fertilizers to bridge the supplies in underserved areas.
In this backdrop, the decision dt May 13, 2015 came as a big relief. It got resounding acclamation from industry including from the Fertilizer Association of India (FAI) – the umbrella organization of all fertilizer manufacturers. FAI opined this will foster competition, help optimize transport cost and reduce pressure on the rail network. The stock market too gave a thumbs up.
However, a DoF office memorandum (OM) dt June 25, 2015 on “Implementation of NBS policy for P&K Fertilizers and revision in NBS Rates for 2015-16” has come as a volte face. Clause 8 provides for continuation of Movement Control. Further, under clause 7, distribution and movement of these fertilizers – along with import of finished fertilizers, fertilizer inputs and production by indigenous units – will be monitored through the online web based “Fertilizer Monitoring System (FMS)/mFMS.
The OM provides for continuation of control on their MRP [albeit indirect] as well. Thus, clause 5 requires companies to submit the certified cost data as per the requirement and directions of DoF from time to time and report to the latter MRP of P&K fertilizers regularly. On the other hand, clause 6 requires them to print MRP along with applicable subsidy on fertilizer bags clearly. Any sale above printed MRP will be punishable under the EC Act.
There is no mention in the OM about allowing rail freight subsidy on lump sum/uniform basis. In other words, existing system of allowing freight on account of primary movement [from factory/port to rail head] of all P&K fertilizers [except single super phosphate (SSP); this fertilizer type is not entitled to freight subsidy] on the basis of “actual” rail freight as per the railway receipt continues.
What prompted the government to backtrack? If prevailing circumstances were so compelling [may be pressure from states who did not want to give up control], why were these not considered earlier? And if the decision to stick to status quo was an after-thought then, why was the matter not put up to cabinet again? All these questions need to be carefully examined.
But, the big issue is why despite providing vital plant nutrients i.e. P & K [no less important than N for which urea is prime source] and NPK use ratio already heavily tilted in favour of N [resulting in serious adverse effect on crop yield, quality, soil health and environment], P&K fertilizers continue to receive a step mother treatment at the hands of policy makers?
The government keeps a tight leash on subsidy leading to high MRP. For instance, DAP subsidy is Rs 12,350 per ton [2015-16]. Based on cost of delivering it to farmer around Rs 35,000 per ton, MRP has to be Rs 22,650 per ton [35,000-12,350]. Against this, urea MRP is abysmally low at Rs 5360 per ton. Being more than 4 times price of urea, DAP is un-attractive to farmers. The scenario for other complex fertilizers and MOP is similar.
The price discrimination is abetted by government’s offer of much higher subsidy on urea vis-a-vis non-urea fertilizers. Whereas, in case of urea, 50-75% of cost is supported by subsidy [depending on production cost of individual units which varies widely from Rs 11,000 per ton to over Rs 20,000 per ton and gets covered under unit-wise New Pricing Scheme (NPS)], for DAP only 1/3rd of cost is covered by subvention.
Under extant provisions for payment of subsidy, in case of urea 95% of payment is released on receipt of material in the district; balance 5% is paid on state government’s confirmation of sale to farmers and certification of quality. On the other hand, for P&K fertilizers, 85-90% of subsidy is released to manufacturers/suppliers on receipt in district and balance 10-15% is paid on certification by state.
Urea manufacturers get reimbursement for secondary freight [cost towards transportation from nearest rake point (railhead where the entire train load carrying fertilizers terminates) to block headquarters in a district] under a uniform freight subsidy policy. Until March 31, 2012, suppliers of P&K fertilizers were getting secondary freight reimbursement on the same basis as for urea. However, from April 1, 2012 this was withdrawn.
Last year, government denied supply of domestic gas [this is cheaper than imported LNG] to Deepak Fertilizers & Petrochemicals Corporation Limited [DFPCL] purportedly on ground that it produces ‘decontrolled’ fertilizers. Companies which escaped the cut viz., GSFC, RCF etc now face mop up of the benefit of cheaper domestic gas [as per clause 12 of OM, DoF will come up with separate guidelines in this regard].
All such pinpricks are impairing the ability of industry to supply P&K fertilizers to farmers at affordable prices and will aggravate increasing imbalance in fertilizer use. These make a mockery of Modiji’s wish to give each and every farmer a soil health card (SHC) so that he applies fertilizers as per soil needs. If, SHC glides him to go for P&K, how will he apply if fertilizers carrying these nutrients are beyond their reach?
Prime minister should order corrective action immediately. The two major decisions viz., freeing of movement control and lump sum/uniform freight subsidy for all units taken on May 13, 2015 should be reinstated. Further, the requirement for submission of cost/MRP data and monitoring & surveillance of every aspect of fertilizer operations [clauses in DoF OM dt June 25, 2015 virtually tantamount to an “Inspector Raj”] must go as these are anathema to the very doctrine of decontrol.
The government’s relationship with industry should be built on trust. This would require that it must not chase each of their actions which inevitably leads to distrust. It should proceed in the belief that they will be transmitting the subsidy in full to farmers. However, it can always do sporadic checks to identify recalcitrant characters if any and take action.
The subsidy regime [covering both subsidy rates and payment terms] for P&K fertilizers should be synchronized with that of urea. All three major nutrients being vital for increasing yield and crop quality, any discrimination in this regard is illogical and untenable. Likewise, treatment in regard to freight reimbursement should be at par. Further, mopping of benefits some units may be enjoying [due to a natural advantage] is totally unjust. However, these are all short-term palliatives.
In medium to long-run the government should prepare itself for direct benefit transfer [DBT] to farmers to cover within its ambit subsidies on all fertilizers including urea which needless to say, will have to be liberated from all controls. Even with full blast preparations, DBT is unlikely to come before 5 years [even so for 4 years, government has frozen the extant unit-wise NPS for urea]. Till then, Modiji will have to carefully navigate to get best outcomes through coordinated and coherent actions.