The subsidy regime, covering both subsidy rates and payment terms, for P&K fertilisers should be brought in sync with urea
On May 13, the government released press notes on the approval of the comprehensive New Urea Policy 2015 and the nutrient-based subsidy rates for phosphate and potash fertilisers for FY16. A key announcement was: “Movement plan for P&K fertilisers has also been freed to reduce monopoly of a few companies in a particular area, so that any company can sell any P&K fertiliser in any part of the country. Rail freight subsidy has been decided to be given on a lump-sum basis so that companies economise on transport.”
So far, only 20% of such fertilisers produced domestically or imported were covered under Movement Control, as per the provisions of the Essential Commodities Act (ECA) 1955. The department of fertilisers (DoF) regulates the movement of these fertilisers to bridge supply gaps in under-served areas. As regards freight subsidy, this was allowed for movement of all P&K fertilisers—except single super phosphate, which is not entitled to freight reimbursement—from port/factory to the railhead on ‘actual’ basis.
Against this backdrop, the recent decision of the government had inspired hope that the era of controls on fertilisers may have finally come to an end, paving the way for manufacturers/importers to be free to sell wherever they like and optimise movement and distribution costs. However, a DoF office memorandum dated June 25, on the “Implementation of NBS policy for P&K Fertilisers and revision in NBS rates for 2015-16” shocked the industry, making it clear that the government was doing a volte-face.
Clause 8 of the memorandum provides for continuation of movement control. Under clause 7, distribution and movement of P&K fertilisers—along with import of finished fertilisers, fertiliser inputs and production by indigenous units—will be monitored through the web-based Fertiliser Monitoring System. Also, there is no mention of allowing rail freight subsidy on a lump-sum/uniform basis, which means the existing ‘actual basis’ system continues.
The memorandum also provides for control on fertilisers’ MRP, albeit in an indirect manner. Clause 5 requires companies to submit certified cost data as directed by DoF from time to time and report the MRP of P&K fertilisers regularly. Clause 6 requires them to print MRP along with applicable subsidy on fertiliser bags clearly. Any sale above printed MRP will be punishable under the ECA.
To have these controls when all P&K fertilisers were de jure decontrolled way back in 1992 is bizarre. What is even worse is that despite the serious imbalance in NPK use ratio—it is heavily tilted in favour of nitrogenous fertilisers (urea, mostly) and has resulted in serious adverse effect on crop yield, quality, soil health and environment—P&K fertilisers continue to receive a step-motherly treatment from policy-makers.
Deeming manufacturers/importers of P&K fertilisers free to fix MRP—whereas, in reality, they are not—the government gives subsidises to these fertilisers of a very low degree. In the case of urea, on the other hand, 50-75% of the cost earns subsidy support (depending on the production cost of individual units); for diammonium phosphate (DAP), only a third of the cost is covered by subvention. As a result, DAP sells at nearly four times the price of urea.
The existing provisions for release of subsidy payments are also discriminatory. In the case of urea, 95% of payment is released on receipt of the material in the district, and the remaining 5% is paid on state government’s confirmation of sale to farmers and the certification of quality. For P&K fertilisers, 85-90% of subsidy is released to manufacturers/suppliers on receipt in the district and the remaining 10-15% is paid only after certification by the state.
Urea manufacturers get reimbursement for secondary freight, or the cost towards transportation from nearest rake point (railhead where a full train load carrying fertilisers terminates) to block headquarters in a district, under a uniform freight subsidy policy. Until March 31, 2012, suppliers of P&K fertilisers were getting secondary freight reimbursements on the same basis. However, from April 1, 2012, this was withdrawn.
Last year, the government denied supply of domestic gas—this is cheaper than imported LNG—to Deepak Fertilisers & Petrochemicals Corporation Ltd on the charge that it was producing ‘decontrolled’ fertilisers. Companies which escaped the cut—prominent among them are PSUs such as Gujarat State Fertilisers & Chemicals and Rashtriya Chemicals & Fertilisers—now face a mop up of the benefit of cheaper domestic gas, as per clause 12 of the memorandum referred to earlier in the column.
Such discriminatory policy treatment—in almost every respect—impairs the ability of the industry to supply these fertilisers to farmers at affordable prices and will aggravate imbalances in fertiliser use. This makes a mockery of Prime Minister Narendra Modi’s vision behind giving farmers a Soil Health Card so that they apply fertilisers as per soil needs. Therefore, the government should initiate corrective action immediately.
The two major decisions—freeing up the movement control and the grant of lump-sum/uniform freight subsidy for all units—need to be reinstated. Further, the requirement for submission of cost/MRP data and monitoring and surveillance of every aspect of fertiliser operations—which virtually tantamount to Inspector Raj—must go as these are anathema to the very doctrine of decontrol.
The government’s relationship with the industry should be built on trust. This would require that it doesn’t treat every action of the latter as liable to be in breach. It should proceed with the belief that the industry will be transmitting the subsidy in full to farmers. However, it can always do sporadic checks to identify recalcitrant characters, if any, and take action.
The subsidy regime, covering both subsidy rates and payment terms, for P&K fertilisers should be brought in sync with urea. Similarly, as regards freight reimbursement, the treatment should be on a par for both fertilisers groups.
Considering that all three nutrients—N (nitrogen), P (phosphorous) and K (potassium)—are critical to increasing crop yield and quality of produce, the government must necessarily go for a uniform policy for all such fertilisers.
In the medium-term, it should prepare itself for the direct transfer of fertiliser benefits to farmers. The foremost requirement is to dismantle the existing unit-wise new pricing scheme for urea. Unfortunately, the Cabinet decided to continue with it till 2018-19. Until NPS goes and we have a uniform subsidy policy in place, a smooth transition to DBT may not be possible. Therefore, we may have to wait till 2019-20.
The author is a Delhi-based policy analyst