The government is considering a plan to impose partial price control on non-urea fertilizers, nearly three years after companies were allowed to set the retail prices of the farm nutrients.
The government is actively considering “advising” the fertilizer industry to fix prices of non-urea fertilizers that include diammonium phosphate (DAP), muriate of potash (MoP), single super phosphate (SSP) and various categories of complex fertilizers, according to two senior government officials with direct knowledge of the matter.
The retail prices of these fertilizers were fully deregulated in April 2010. The price of urea, the most dominant fertilizer, however, remains under government control.
On 30 January, Mint had first reported that the government was set to significantly cut the subsidy it offers on non-urea fertilizers for the second time in 12 months. The report said that the subsidy cut could be to the tune of Rs.3,000-4,000 per tonne, across various categories of fertilizers.
Officials now say that they are looking at a subsidy cut of Rs.2,000-2,500 per tonne. “We would advise companies to reduce prices by Rs.1,000-1,500 per tonne,” said one of the two officials.
In effect, while DAP could see a subsidy cut of Rs.2,000 per tonne, the government will ask companies to reduce retail prices by Rs.1,500 per tonne. For MoP, the corresponding figures are likely to be Rs.2,500 per tonne and Rs.1,000 per tonne, respectively.
While DAP currently sells at about Rs.24,000 per tonne, MoP sells at Rs.16,700 per tonne.
This exercise would require setting up a benchmark price as there is a variation in retail prices at which different companies sell the farm nutrients, according to the officials.
Currently, the government provides a subsidy of Rs.14,350 per tonne on DAP and Rs.14,440 per tonne on MoP. The subsidy on complexes and SSP is determined by the proportion of nitrogen, phosphate and potash in each grade. The subsidy on nitrogen and potash is Rs.24 per kg and for phosphate it is Rs.21.80 per kg.
A cabinet note to this effect is being prepared and the issue could come up for discussion either this week or the next.
The second official said that the issue was discussed by an inter-ministerial panel that met on 31 January, and that is how the idea gained currency. Officials admitted that imposing price controls could be tricky, since the decision to fully deregulate prices was taken in April 2010 by the cabinet. “This is a political decision, and the cabinet will again have to sign off on it,” said the second official.
Officials say that controlling non-urea prices has become necessary for the government in an election year, as they have sky-rocketed since they were deregulated.
Almost the entire demand for non-urea fertilizers is met through imports, either in intermediate or finished form. The domestic annual demand for DAP is 11-12 million tonnes a year, the second highest after urea.
While 6-6.5 million tonnes of DAP is imported, the rest is produced locally. The demand for MoP stands at 5-6 million tonnes.
Satish Chander, director general of The Fertiliser Association of India lobby group, declined to comment on the issue immediately. “We have a board meeting on Wednesday to discuss the issue. I will only comment after that,” he said.
The managing director of a leading fertilizer company, who did not want to be identified, said the industry was opposed to the government’s move as it would impact profits. “We don’t want price controls back. This will be counter-productive,” he said.
Tarun Surana, an analyst with Mumbai-based Sunidhi Securities and Finance, said that if price cuts were implemented, it could choke the system.
“There are old inventories that are yet to be sold. Traders will find it tough to sell them. Instead of price cuts, the government should cut subsidy by Rs.3,500 per tonne, and the pending inventories will ensure that price points will hold,” Surana said.