A 15 per cent or Rs 500 per tonne subsidy hike has been announced by the government in case of both indegenous as well as imported potassic and phosphatic fertilisers. According to the subsidy norm indigenously manufactured DAP will carry a price concession of Rs 4,000 per tonne as against Rs 3,500 per tonne earlier. The concession on imported DAP (di-ammonium phosphate) and MOP (Muriate of Potash) will be Rs 2,500 per tonne as compared with Rs 2,000 per tonne earlier.

Subsidy on SSP (Single Super Phosphate) has been increased by Rs 300 a tonne from Rs 600 a tonne. The new subsidy now is Rs 900 a tonne. The complex fertiliser which had a subsidy component varying between Rs 1,500 per tonne and Rs 3,130 per tonne will now carry a subsidy of Rs 2,250 per tonne at Rs 3,646 per tonne.

Manufacturers of these phosphatic and potassic fertilisers have welcomed the move. Though the demand of the industry was higher, the current hike is better than what was given to the industry previously. SSP manufacturers had demanded a hike of Rs 600 per tonne to increase the subsidy element to Rs 1,200 per tonne. DAP manufacturers on the other hand demanded an increase of Rs 1,500 per tonne but had to be satisfied with a Rs 500 subsidy hike.

The most important thing industry sources say, is the freedom to fix prices. As a result of this prices of DAP is likely to increase by Rs 1,000-1,200 per tonne. DAP prices which are now at Rs 8,300 per tonne at farmgate level is likely to go up to Rs 9,300-Rs 9,500 per tonne. Prices of MOP is likely to go up by Rs 600-Rs 800 per tonne to a level of Rs 4,300-Rs 4,500 per tonne from Rs 3,700 per tonne. Prices of SSP on the other hand is likely to increase marginally by around Rs 275 per tonne.

Increase in subsidy to these fertilsers will increase the governments subsidy burden to the sector from an estimated Rs 2,600 crore in 1978-98 to Rs 4,000 crore this year, a whopping 54 per cent rise. Increase in subsidy was necessary considering the fact that raw material prices specially phosphoric acid had increased which in turn had increased the manufacturing ocst of the producers.

Inspite of the increase in these fertiliser prices, manufacturers say that consumption is unlikely to be affected in the long run.

Allowing the flexibility to fix prices, manufacturers will now be able to penetrate the rural market which was not possible earlier, says SV Balkundi, Director of Rama Phosphate. Earlier fertiliser companies use to sell their products mainly to the nearest railway terminal as the price at which they were allowed to sell their products was not remunerative to sell in the interiors.

Analyst, however, feel that the current hike in phosphatic and potassic fertilisers will affect the consumption pattern of fertilisers.

Consumption of urea will increase considering the fact that a lot of farmers were affected in the previous year and do not have the resources to purchase costly fertilisers. The best answer, repeat industry players as well as analyst would have been to increase prices of urea considering the long term agricultural goal of the government.

Consumption of phosphatic and potassic fertilisers have been affected since 1992 after the government had decontrolled these fertilisers. At the same time consumption of urea had increased by 35 per cent.