The current problems in the supply of fertilizers to farmers across many states point to the inability of the United Progressive Alliance (UPA) government to take important decisions in time. There have been violent protests by farmers who did not get fertilizers in time in Karnataka. Protests have been witnessed in Maharashtra and there are reports of supply bottlenecks in Punjab, too.
In Karnataka, where one farmer died in the police firing and many others were injured, the newly elected government has cited an expected shortfall of 300,000 tonnes of complex fertilizer and 50,000 tonnes of Diammonium Phosphate. The Union government has denied any shortfall.
The problem is the tardy response of the UPA government to situations that call for quick policy responses. The fertilizer issue is not an isolated episode. In October 2006, the Reserve Bank of India, in its mid-term review, had warned of heightened inflationary pressures. The government studiously ignored it till it was too late.
The hardening of international crude prices, including those of the Indian “basket”, should have served as a warning to the government. The prices of feedstock for fertilizer production — liquefied natural gas and naphtha — have increased by 198% and 50%, respectively, while those of fertilizer have remained almost constant. This will deliver a crippling blow on the fertilizer subsidy front. Realistic estimates of fertilizer subsidy are in the range of Rs95,000 crore (or 1.9% of GDP). The government’s subsidy estimates are wholly out of line and are as low as one-third of industry estimates.
In such conditions, it’s natural that the fertilizer industry will have misgivings unless the subsidy, freight and pricing issues are handled upfront. So far, this has not taken place. Any realistic and lasting resolution of the problem requires price reforms. These are unlikely to come when elections are less than a year away. Though the reasons for not doing so are plain wrong: If the situation is explained to farmers, they will readily agree to pay, especially in an era of high crop prices. It’s time the UPA realized that politics ought to be practised in a different domain, one that does not peril food security.
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