The nutrient-based subsidy (NBS) regime that came with decontrol of farm-gate prices of phosphatic and and potassic fertilisers has kept the farmer happy with increased availability of these fertilisers at prices which they can pay, according to sources in the government and the industry.
A department of fertilisers (DoF) official told FE that since the decontrol from April, the price of DAP, the fertiliser rich in phosphorus (P) has gone up by just 6% while that of MoP, which contains potash (K), has remained unchanged. In the case of SSP, the fertiliser rich in both phosphorus (P) and the micro-nutrient sulphur, the NBS regime has allowed a 20-36% fall in prices and resultant hope of a spurt in its use, he said.
Last week, the DoF ?notified? the lower SSP price of Rs 160 per 50-kg bag, ?based on the understanding? with the industry as the subsidy content has gone up thanks to the NBS formula.
Moreover, certainty about subsidy and its timely disbursal has encouraged fertiliser companies to take the unprecedented step of contracting for imports of the entire quantity of phosphatic and potassic fertiliser for 2010-11, right at the start of the year. This is a departure from the earlier practice of striking monthly supply deals, which often used to create supply uncertainties.
About 12 million tonne (mt) of DAP (7 mt in finished form and the rest as raw material), 4.5 mt of MoP and one mt of complex fertilisers have already been contracted by fertiliser companies ? roughly equal to the total quantities of these fertilisers needed for the whole year.
About 60% of DAP imports are in the finished form and the rest as raw material, while the entire MoP (muriate of potash) requirement is met through imports in the finished form. SSP is also totally imported.In the NBS regime, the subsidy is fixed and linked to the nutrient content and each manufacturer/importer is paid the subsidy based on the quantity of nutrients produced by him. The government, of course, would look at the ?prevailing international price scenario? and the ?intended farm-gate price? of each fertiliser as it fixes the subsidy.
Official sources said the decontrol of P and K fertilisers has given the fertiliser companies more freedom to go for newer products, besides already imparting a sense of competition among them. Availability of a variety of fertilisers at affordable prices would eventually ensure balanced use of fertilisers. India?s fertiliser consumption pattern is currently skewed in favour of urea (Nitrogen). The sources however admitted that since the NBS system would spur consumption of fertilisers, the subsidy bill might not decline as sharply as many would have thought. Opposition parties had protested at the price de-control, while fertiliser minister representing DMK in the ruling coalition M K Alagiri tried to dissuade the Cabinet from freeing up prices, fearing a sudden spurt in price. While de-regulating the prices of phosphate and potash fertilisers, the government raised the price of urea, which remained constant since 2002 by 10% to Rs 5,310 a metric tonne.
The DoF last week announced a subsidy of Rs 4,400 per metric tonne from May this year for SSP, which is double the subsidy allowed in the months of August and September last fiscal. ?We want to popularize the use of SSP which contains 16% P and 11% sulphur,? the DoF official said.
Fertiliser major IFFCO Ltd?s managing director US Avasthi told FE, ?We have always maintained that opening up the sector would lead to good quality products at competitive prices and better availability. This year?s subsidy that has been announced is very good for farmers and the SSP industry.? Avasthi said his appeal to fertiliser producers is to keep farmers? interest at heart and provide good quality fertilisers. Price de-regulation along with availability of natural gas at stable prices (through price pooling of gas under consideration of the ministry of petroleum and natural gas) is expected to attract the fresh investments in the fertiliser sector, said a sector analyst.
The government has earmarked Rs 52,481 crore fertiliser subsidy for this fiscal, more than half of which is for decontrolled fertilisers?both locally made and imported. But the final subsidy outgo in the year may vary depending on the actual requirement of decontrolled fertilisers, which could be met through supplementary grants. Last year, the government had provided a subsidy of Rs 52,980 crore, which was Rs 3,000 crore above the original budget allocation. In 2008, fertiliser subsidy had skyrocketed due to the global spiral of commodity prices to nearly Rs 1 lakh crore.