Deregulation of fertiliser prices in the new nutrient-based subsidy regime would be only to the extent that the cost farmers incur doesn?t rise beyond a band. The government won?t shy away from controlling prices, in case of steep increases in prices in the initial months of the new regime, a senior fertiliser department official told FE.
Of course, subsidy adjustments will be the first choice of the government to reign in any sharp rise in prices of phosphorous and potash-based fertilisers after their deregulation from April 1. The government will, however, keep the option of using its legislative muscle to control retail prices if mere tweaking of the subsidy allocation doesn?t work, said the official.
Tweaking of subsidy amounts, along with occasional price adjustments of phosphorous and potash, are expected to reduce any likely pain to the farmer from deregulation, as the wild fluctuations in the global prices of the two fertilisers cannot be ruled out. Nearly 90% of phosphorous and all of potash needed in the country are met through imports.
?Subsidy adjustments are the easiest options, but if need be, the powers of the Fertiliser (Control) Order of 1985 can be invoked despite the de-regulation,? the official said. While announcing the decision to free up retail prices of fertilisers last week, the government had stated it would make ?interventions? to protect farmers, but did not clarify how.
The Fertiliser (Control) Order (FCO) gives the government power to fix retail prices and revoke the licence given to producers and dealers for certain violations such as selling sub-standard or adulterated products, giving false claims about nutrients and selling fertilisers without showing the minimum guaranteed nutrient as a fraction of the total weight. FCO also allows the government to fix different retail prices for selling the same product in different locations or to different classes of buyers.
After giving producers the freedom to fix retail prices of potash and phosphorous from April, the government?s main concerns are in these areas?non-supply to far flung areas, escalation in international price being passed to the local consumer, sale of products beyond printed price and selling poor quality fertilisers.
?The subsidy element per nutrient for supply in far flung locations could be adjusted to ensure its adequate availability. Similarly, if the agriculture ministry finds that it would be useful to promote or discourage a particular nutrient, we could easily achieve that by adjusting the subsidy entitlement on it,? said the official. These considerations make it difficult for the government to keep the amount of subsidy constant and allow prices to fluctuate freely, the concept behind the current deregulation. An inter-ministerial committee, with members from fertiliser and agriculture departments, will decide the subsidy for various nutrients and then compute the total subsidy for a kg of fertiliser by adding the subsidy elements multiplied by their share in the total weight. (For example, there is 160 gm of water soluble phosphates in 1kg of single super-phosphate.) Industry experts said the deregulation of prices was set to encourage cross-border deals for sourcing raw materials at attractive rates or set up joint ventures abroad to produce them for own use.