Reaping the savings

The announcement by the fertiliser ministry that the selling prices of key non-urea fertilisers will be ‘slashed’ by between ₹50 and ₹125 a bag, unleashing savings of ₹4,500 crore is bemusing, to say the least. No doubt, savings in the cost of this critical agri input would be welcome to farmers who have been severely buffeted by two consecutive years of deficient monsoons. But then, the non-urea fertiliser industry has been officially decontrolled and ostensibly free to fix selling prices on its own for six years now. Following the announcement, public sector fertiliser makers — RCF and NFL — have agreed to slash product prices. But private sector producers, who account for over 90 per cent of the market, have indicated their reluctance to follow suit. Whether farmers really get to enjoy those promised savings now depends on how the Centre resolves this quandary.

In fact, by indicating the selling price for private manufacturers, leaning on public sector units to slash prices and announcing periodic meetings with the industry to review prices, the Centre is signalling its intent to go back on the decision taken six years ago to decontrol non-urea fertilisers. This is not desirable. It was a five-fold expansion in the fertiliser subsidy bill which prompted the UPA government to usher in the nutrient-based subsidy (NBS) scheme for all non-urea fertilisers in April 2010. Under this scheme, in return for ensuring that di-ammonium phosphate (DAP) and complex fertilisers were priced substantially below cost, manufacturers were promised a flat per tonne subsidy based on the import parity prices of N, P, K and sulphur — the key nutrients. They were also given the freedom to fix farmgate fertiliser prices based on their own costs. Fortunately for the Centre, the prices of NPK nutrients, after peaking in 2010, declined by between 11 and 35 per cent post-NBS. This has allowed the Government to effect drastic cuts in its subsidy payouts, thus shrinking the subsidy bill on non-urea fertilisers from over ₹65,555 crore in FY09 to ₹19,000 crore this year. But with the exchequer mopping up much of the gains, neither farmers nor the industry have benefited much from the fall in costs. The lack of parity between urea and phosphatic fertilisers has also prompted farmers to switch to urea, skewing the NPK application ratio to 8:3:1 (the ideal is 4:2:1).

While there is an urgent need to fix this ratio, attempting it through price controls on phosphatic fertilisers can backfire if it triggers production cutbacks or higher import reliance. A more durable solution lies in implementing urea price decontrol while global prices are still low. This will cut the Centre’s subsidy bill while encouraging more balanced fertiliser use. Pricing freedom can be balanced by opening up imports. The Centre should also push ahead with a Direct Benefit Transfer regime for all fertilisers, so that cash subsidies can be delivered directly into the hands of small and marginal farmers instead of being routed through industry.

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