The government plans to raise prices of urea, the most widely consumed fertiliser in the country, by a steep 40%. The move, necessitated by the government's mounting subsidy burden, is a test of its political courage as it comes just ahead of elections in five states.
Farmers in India use about 28 million tonne of urea annually, of which 6-8 million tonne is imported. The uptrend in prices of imported urea and that of feedstock necessary for domestic production has pushed up the government's subsidy bill for the sector to nearly Rs 100,000 crore, from the budgeted Rs 54,000 crore.
"A proposal is being formulated and a formal cabinet note will be circulated by next week," said an official with the fertiliser and chemicals ministry.
The proposal has the backing of the finance ministry, which is keen to limit the fiscal breach.
Urea, which accounts for over half of country's total fertiliser consumption of 52 million tonne, is the only soil nutrient whose price is controlled by the government. Urea prices were last revised up in April 2010 to Rs 5,310 a tonne from Rs 4,830. The government pays producers the difference between the retail price of urea and its production cost as subsidy.
Last year, it notified a nutrient-based subsidy regime for fertilisers, but kept politically sensitive urea out of it. Currently, the amount of subsidy for each of the nutrients - phosphates and potassium- is provided to the producer or importers at a fixed rate.
Manufacturers are free to price these decontrolled fertilisers in line with international prices, as India relies on imports to the extent of 90% for phosphatic fertilsiers and 100% for potassic ones.
Because of hardening global prices, the domestic prices of non-urea fertilisers, chiefly di-ammonium phosphate, have risen sharply after the switch to nutrient-based subsidy. This has led to indiscriminate use of urea by farmers much to the chagrin of domestic manufacturers and soil experts. Overuse of urea has also created soil imbalance, leading to decline in soil fertility.
FM Pranab Mukherjee has already said that the expenditure on fertiliser subsidy could be as high as Rs 90,000 crore in 2011-12, while under recovery on sale of petroleum products could be over Rs 1.32 lakh crore.
IFFCO MD US Awasthi said the subsidy at the current level was unsustainable and was encouraging rampant use of urea.
