OneWorld.net (U.S.)

The chemicals and fertiliser ministry’s reported move to seek the Prime Minister’s intervention for a hike in fertiliser subsidy outlay for the current fiscal and the next tackles the symptom, not the cause of the disease. Ad hoc management, such as incremental increase in the amount, is obviously no alternative for a bold attempt to address the real issue—growing imbalance between the cost of domestic urea production and imported urea price. The root of the problem is unquestioning acceptance of the specious concept that the government has to share the burden of domestic fertiliser units’ inefficiency, for whatever reason, in perpetuity.

It is time the government woke up to the fact that it is no sin to free up import of urea and let inefficient domestic capacities wither away in the face of competition. Urea from the Oman fertiliser plant, in which the government of India has a stake, has proven to be substantially cheaper. Urea production in India is largely uneconomical. Naphtha, feedstock of most of the 32 urea units in the country, is exorbitantly costly. Gas is a cheaper feedstock, but only because its price is administered. LNG, an alternative fuel being talked of, too, has an uncertain pricing pattern, linked to crude oil. A recent study has shown that one-third of domestic urea capacity would become unviable at an “import parity price” of $180 a tonne. Though the price has recently gone up to $240 a tonne, this is likely to be a transient phenomenon. Urea prices have fallen as low as $120 a tonne, at which price many domestic units will not be viable.

True, given the low purchase power of the average Indian farmer, he would find even imported urea unaffordable for some more time. But direct subsidy to the farmer would be a much more financially relieving option for the government. The Prime Minister recently told Parliament the government was considering such a step. To be sure, there are issues such as leakages that will need to be addressed while making direct subsidy a reality. But the subsidy burden on the exchequer would be substantially reduced. The farmer would find direct subsidy more useful. The industry, on its part, must be allowed to operate in a free market.

Source:The Financial Express