FM firm: no extra subsidy for fertilisers

New Delhi, Jan 26 | Updated: Jan 27 2005, 05:30am hrs
The finance ministry, which proposed doing away with fertiliser subsidies in the present form in the recent white paper on subsidies, seems to be taking the right steps. It has turned down the fertiliser departments demand for additional budgetary subsidy of Rs 5,000 crore for this fiscal.

The denial came despite the department' structured argument that huge increase in cost of inputs like naphtha, phosphoric acid and potash had necessitated extra payout to maintain support to farmers and fertiliser units at the same level as last Budget.

The forthcoming Budget would, in all likelihood, spell out a roadmap for subsidy restructuring. Signals from the finance ministry are, however, forcing food, agriculture and fertiliser ministries to look for alternative ways to raise funds.

We have to look for alternative ways (to raise money), as the finance ministry seems to be quite determined (to not give extra funds), fertiliser secretary, SNPN Sinha told FE. Given the huge increase in input costs, fertiliser units would find it too difficult to take the hit and spare consumers totally. Agricultural production might suffer, said Mr Sinha.

For the current fiscal, the finance ministry has provided Rs 12,662 crore as subsidydouble the amount in mid 1990sand it stands almost fully utilised now. The subsidy money was used up earlier than projected because input costs have risen substantially.

Naphtha price has jumped from Rs 12,000/tonne a year ago to Rs 22,000/tonne now; price of phosphoric acid, basic input for phosphatic fertilisers, which is mostly imported, has increased to $400/tonne from $350 a tonne.

In fact, in the white paper, the finance ministry too had acknowledged that phasing out of the subsidy would lead to a fall in foodgrain production.

It had, however, proposed reducing subsidies to both farmers and fertiliser units (the latter avails of one-third of the fertiliser subsidy benefits as reimbursement of feedstock cost). It is considering de-canalisation of urea imports and introduction of flat rate subsidy system for bringing down the subsidy burden on the government. Setting up of fertiliser plants in countries where natural gas, the cheaper feedstock, is available in plenty would help reduce cost.

The governments food subsidy bill for the current fiscal is Rs 25,800 crore or 0.93% of GDP. The subsidy on LPG and kerosene is almost equivalent to the excise revenue from the two products. The government, therefore, has the option of waiving excise duties on these products and minimising the subsidy.

Conversely, the administrative ministries of the subsidised sectors point out the fact that developed countries like the US and EU maintain huge domestic support for agriculture. For instance, over 25,000 cotton farmers in the US receive a subsidy of $3 billion annually, which is way above what a cotton grower in India gets as subsidy.