Decontrol of urea possible only after achieving self-sufficiency

Written by Gireesh Chandra Prasad | Gireesh Chandra Prasad | Updated: Feb 28 2011, 08:34am hrs
The government initiated reforms in the fertiliser industry at the beginning of 2010-11 by limiting subsidy on phosphate and potash and giving pricing freedom to producers. There are divergent views in the central and state governments about doing the same with urea, the most commonly used fertiliser as the union government moves towards fiscal consolidation. Assembly elections in five states in the next few months may tempt the government to slow down the pace of subsidy reforms. Fertiliser secretary Sutanu Behuria spoke to Gireesh Chandra Prasad on the issues confronting the sector including pricing, deregulation, feedstock and investments. Excerpts:

What is your view on decontrolling urea price Do you think farmers interest will get affected

It is very difficult to establish the price elasticity of urea in India as it has always been under government control. Therefore, we cannot hazard a guess on how much the demand for urea will come down if price is increased by 10%. We do not have any data. However, everything is sensitive to price increase, only the extent of that varies. If you double the price of urea, consumption will certainly come down. But if you increase by, say, 5%, consumption may not get affected. The demand for fertilisers is not solely dependent on price; it is dependent on so many other things such as monsoon and the price of food items. A farmer growing wheat would not mind paying a little more for urea if he knows that wheat price will go up. So, in principle, urea price can also be deregulated, but whether price deregulation can be to such an extent that would adversely affect the demand for the commodity, is a call to be taken by the government.

The government reserved its right to intervene in the market and check any abnormal price increase in the case of phosphatic and potash fertilizers, which were decontrolled from the beginning of this financial year. Cant that model work for urea as well

The difficulty with urea is that it is not similarly placed like the other two classes of fertilisers. We produce 80% of the urea in the country, whereas we import our entire requirement of muriate of potash and about 40%-45% of di-ammonium phosphate. Those prices are largely related to international prices. In the case of these two fertilisers, the subsidy goes to the importers and those prices are determined by international prices. However, the concession scheme (subsidy framework) for urea is such that the subsidy goes to domestic producers. It is a different scheme as we are producing this plant nutrient here. There are different producers who rely on different feedstock and have different costs of production. (About three-fourth of the 28 million tonne urea produced in the country rely on cleaner and efficient natural gas, while the rest depend on costlier and polluting naphtha or furnace oil.) We do not want urea production to come down because if that happens, we will become dependent on imports. And there is a cartel in global markets. We want to become entirely self-sufficient in urea. Then we can think of various schemes. Urea is a diverse sector and over a period of time, we hope that all units will move to gas. But that will take some time.

Has the lower-than-expected natural gas production from Reliance Industries Krishna Godavari basin affected the fertiliser sector

This is the subject of the petroleum ministry. Some of the fertiliser producers have written to us saying they are not getting their full allocation of gas. We have brought it to the notice of the ministry of petroleum and natural gas. We hope they will resolve the issue.

Wouldnt Indias declining gas output delay your plan of getting all the urea producers to switch to gas

We can rely on imported liquified natural gas (LNG). Some new LNG import and re-gassification terminals are coming up. The situation is the same with any natural resource. When we do not have enough of it in our country, we will have to rely on the global market. The same applies to power, another user industry of gas. But the government has given first priority to fertilisers.

It is estimated that fertiliser subsidy will exceed budgeted estimates this fiscal.

One of the major reasons for the subsidy requirement going up from the estimate made at the beginning of the fiscal is the good monsoon that we received and the consequent higher consumption of fertilisers. This has reflected in the countrys agriculture output. (As per governments advance estimates, farm output has grown 5.4% this fiscal against 0.4% a year ago.) We have made fertilizers available across the country as per the requirement of state governments. Obviously, consumption has gone up.

We expect most of the requirement above the budget estimate will be met in the third supplementary demands for grants. The balance can be rolled over to the next financial year, as is the usual practice. (The government had estimated a subsidy requirement of Rs Rs 49,981 crore for 2010-11, which is 5.6% less than that of the drought hit previous year. Subsequently, it gave an extra subsidy of Rs 5,000 crore.)

Why do you think new investments into the urea sector is hard to come by

In my view, the availability of natural gas is a constraint on fresh investments. A greenfield urea project would require an investment of Rs 4,000 crore. Investors would want to be certain about the availability of gas and the expected profits if they are to make that kind of investments. Now, the department fertilisers and a committee chaired by Planning Commission member Saumitra Chaudhuri are working on various models for a new urea investment policy.

Is the idea of giving subsidy directly to the farmer still under consideration

The ultimate aim is to give fertiliser subsidy directly to the farmer. We have to work out an identification system for the beneficiary and distribute identity cards to farmers. All that is being discussed actively. However, there are some challenges in identifying the beneficiary. State-level land records cannot be relied upon to identify the farmer as many of them do not own land. Besides, these records may not indicate whether the title-holder does agriculture activity himself.