Hardly, for the average farmgate cost for both imported as well as domestically manufactured DAP will continue to be higher than the total realisation even after the hike in concessions. According to the Fertiliser Association of India (FAI) estimates, the average farmgate cost for indigenous DAP works out to be around Rs 13,300 per tonne while the total realisation is Rs 12,700 per tonne.

After a Rs 200 per tonne hike in the subsidy component, total realisation would rise to Rs 12,900 per tonne, but this would still be lower than the average farmgate cost. So, it seems, is the case with imports.

Some upward revision in the subsidy is at least better than none at all, one might say. True, but it would perhaps be a better idea to examinewhether an increase in price concessions is at all warranted in the first place. The main argument in favour of higher subsidies is that farmers must be given access to plant nutrients at an affordable price.

Hence the retail prices must be strictly controlled and if these do not cover costs adequately, the gap must be bridged by government subsidies. Besides, in order to tackle the problem of the worsening NPK ratio, it is essential to encourage greater usage of fertilisers containing phosphorus and potassium. However, it is doubtful if higher subsidy for DAP actually helps to achieve these goals.

It is a known fact that on most occasions farmers pay far more than the official retail price in order to purchase DAP. Last Rabi, farmers paid as much as Rs 575 per sack of DAP when the official price was Rs 415. As the "premium" is collected in cash while the receipt is made out in accordance with the official price, the subsidy mechanism for DAP inadvertently creates an avenue for the generation of "black"money. The premium does not accrue to the manufacturers or the importers but is instead pocketed by the dealers and the retailers. Therefore, while the traders flourish in a subsidy regime there is little incentive for the manufacturers and the importers to carry on their operations.

Firstly, the price support announced by the government is invariably always found to be inadequate by the industry. Secondly, even when higher subsidies are announced, it is often months before the dues are actually received by the manufacturers and importers. Even the "on-account" 80 per cent subsidy payment is delayed by the Ministry of Agriculture resulting in higher short term borrowings by DAP companies. This further results in higher interest outgo and lower cash profits.

The best way out under the circumstances, would perhaps be to free DAP prices while at the same time maintaining a minimum subsidy-level. No doubt, prices would rise but competition would ensure that the price rise is within reasonable limits. Asmanufacturers and importers would have an incentive to step up their operations, there would be adequate supply of DAP in the market. This would help to do away with the unofficial premiums and the farming community would be ensured of a steady supply of the nutrient.