New Delhi: The committee of secretaries (CoS) under the chairmanship of Planning Commission member Saumitra Chaudhuri gave an in-principle clearance to a draft document on a new urea price policy on Friday, two government officials confirmed independently.
“The policy document will now be circulated to the various ministries-fertilizer, petroleum, agriculture and finance-that were represented in the CoS,” one of them said. “The agriculture and petroleum ministries had asked for clarifications on some aspects of the draft policy, and so require time before giving their final nod.”
Once these ministries clear the policy, fertilizer and chemicals minister M.K. Alagiri’s consent will be sought. It will then be taken up by the group of ministers (GoM) headed by finance minister Pranab Mukherjee examining the issue. Once the GoM clears the policy, it will go to the cabinet for approval. The date for the GoM meeting has not been fixed.
Mint reported on 24 March that India was likely to adopt a model that would partially free retail prices of urea and provide additional subsidies to laggard units for two years to help them improve production efficiency.
If the proposal comes into effect, urea makers will be able to raise the maximum retail price (MRP) of fertilizers by up to 10% of current prices. The proposed pricing model is, however, likely to be restricted to units that use natural gas as feedstock and not naphtha.
As much as 80% of India’s production of urea is gas-based.
The government will likely follow a flat subsidy structure under which it will extend a subsidy of Rs 4,000 per tonne to every gas-based urea unit.
Some units that have substantially higher costs of production will be given extra relief for two years, by when they would be expected to improve efficiency and lower cost.
The naphtha-based units will continue to follow the current pricing model till they switch to gas as feedstock. These firms have indicated they would switch to natural gas by 2014.
The proposed model also suggests the government buy natural gas directly through the Fertilizer Industry Co-ordination Committee and supply it to the companies at a “weighted average price”.Urea makers now buy gas from suppliers through separate production-sharing contracts.
In a free MRP regime, the government could also ask companies to pass some of their subsidy burden to farmers by increasing this periodically.