Fertilising progress

The Budget proposal on fertiliser subsidy must move on to urea price decontrol.

The Centre has signalled bolder reforms in fertilisers, which consume . 50,000 crore of subsidy. The Budget proposal to fix the subsidy on urea, the big daddy among fertilisers, based on the nutrient content is welcome. At present, subsidised urea skews demand in its favour at the expense of other nutrients and the manner in which it is dispensed rewards inefficient producers.

Fixing the amount of subsidy available by producers per tonne of urea, regardless of how much companies claim as the cost of production, will greatly improve matters. This is what the proposed nutrientbased subsidy does. But we need to go one step further. The farmgate price must be decontrolled. Giving fertiliser companies the freedom to set the price of what they produce will allow farmers to benefit the most from innovations in products, marketing and soil-specific nutrition diagnostics.

It will allow manufacturers to offer innovative nutrient combinations, improve the fertiliser balance, soil health and farm yields. This is the only way the fertiliser industry can see fresh investment, after over a decade. The next stage should be to provide subsidy to the farmers through direct cash transfers instead of reimbursing fertiliser companies the difference between the retention and sale price.

And the ultimate goal should be to end this subsidy altogether, redirecting the resources saved to invest in farm infrastructure and R&D. The decision to switch to cash transfers for fertiliser as well in 2012-13 is wholly welcome. Price decontrol of fertiliser and direct cash transfers to the farmer will pave the way for competitive markets that will help lower prices.

Gas is the preferred feedstock for fertiliser, the world over, and would cut costs. There is urgent need to ensure that fertiliser companies do, in fact, get gas on a priority basis as they are supposed to.
While the levy of 1% excise duty on fertiliser is a welcome step to bring it under the goods and services tax regime, the right way to end the confusion on who would bear this additional cost, whether companies, farmers or the government, is to decontrol farmgate prices.