The news that Reliance Industries Ltd (RIL) could be supplying natural gas at a cheaper-than-prevailing rate of $4.5 per mBtu for domestic fertilizer producers is welcome. This would lower the cost of their key input. As the state bears part of their costs to keep fertilizers affordable for farmers, this could help ease its subsidy burden, too.
RIL has been trying to determine a price for its gas through talks with fertilizer companies, among other consumers. Such big consumers are crucial for it, since they secure demand for its gas. So a collective negotiating effort by buyers might make the rate even more competitive. As India aims to increase its agricultural growth, demand for fertilizers will rise faster, while supply is already lagging behind. There are new capacity plans, which means more bargaining power for the gas buyers. Since politics won’t let government say no to subsidies, it might as well jump in to negotiate harder.