New Delhi: The government has set the stage for deregulating the fertilizer sector, with a group of ministers, or GoM, giving its “in principle” nod for setting up a regulator.
The GoM has also approved a shift to the nutrient-based subsidy regime, although it did not specify the way this system would work.
If the cabinet, which is to consider the GoM’s politically sensitive recommendation in a few weeks, endorses the move, the pricing of fertilizers will henceforth be carried out by the regulator and not the fertilizer ministry. Consequently, fertilizer subsidies in future would be computed on the basis of the price approved by the regulator.
The GoM however, rejected a proposal to provide subsidy directly to the farmers. Currently, the ministry fixes the selling price of fertilizers and provides a subsidy to manufacturers. Industry analysts term this decision a volte-face on the government’s part as last year’s Union Budget had said the government would launch a pilot programme in one district of each state where fertilizer subsidy would be paid directly to the farmer.
According to a government official familiar with the development but who did not wish to be identified, the GoM has left many crucial details to be decided by the cabinet later. “There was no consensus on the manner in which the various nutrients will be priced under the nutrient-based subsidy regime. Also the details of the ‘regulator’ have not been decided. Many of the decisions are highly political in nature and they have been left for the cabinet to decide,” the official added.
The ministers’ panel is headed by agriculture minister Sharad Pawar and includes finance minister P. Chidambaram, fertilizer and chemicals minister Ram Vilas Paswan and deputy chairman of planning commission Montek Singh Ahluwalia.
The GoM also approved the move to include sulphur and fortified fertilizers in the subsidy regime, which may result in an additional subsidy burden of Rs1,200 crore.
The process of fortification, which improves soil productivity, essentially involves enriching a regular fertilizer product with secondary or minor soil nutrients like zinc or boron. This can be done either through mixing the minor nutrients with the main fertilizer or by coating the main product with a layer of the minor nutrient. Sulphur is considered to be the fourth most important soil nutrient after Nitrogen, Phosphorous and Potash, and its deficiency is seen as a big reason for the reduced efficacy of the primary nutrients.
The centre’s move to introduce a nutrient-based subsidy regime for fertilizers is an attempt to optimise use of these agricultural-inputs as reported by Mint on 2 August. The proposal will address what experts term “soil-fatigue”—a decline in the fertility of soil arising from excessive and imbalanced use of fertilizers over the years.
Under a nutrient-based subsidy, a wide variety of fertilizers customized to a farmer’s specific needs will be available. At present, the government follows a product subsidy regime, wherein the farmer has very little choice of fertilizers and opts for those that are subsidized. This results in soil fatigue.
“We always backed the nutrient based subsidy. We believe it will lead to balanced use to fertilizers and improve agricultural productivity,” said R.C. Gupta, deputy director general of the Fertilizer Association of India, an industry body.
Not everyone shares Gupta’s view.
“The GoM has basically approved only the concept and nothing more. I don’t think something has been achieved at the end of the day because the operationalization has been deferred. The regulator is a very important move but it will make sense only if the pricing is freed. His role should be to ensure that the industry is adhering to the best practices in service and pricing,” said a senior executive at a fertilizer manufacturing firm who did not wish to be identified.
The government has till now disbursed Rs37,451 crore as fertilizer subsidy for the year 2007-08 as against a budget allocation of Rs22,451 crore. However, the actual requirement of subsidy, is expected to be close to Rs45,000 crore.
The increase in prices of raw materials and intermediates has meant that the government’s subsidy burden has more than doubled over the last two years.