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CAG slams nutrient-based subsidy policy for fertilizers

By not fixing the benchmark price at a reasonable level for import of DAP (di-ammonium phosphate) fertilizer, which delayed finalization of contracts between international suppliers and domestic fertilizer companies, the government lost an opportunity to save a subsidy of `5,555 crore in 2010-11, CAG found in its audit. Photo: Pradeep Gaur/MintPremium
By not fixing the benchmark price at a reasonable level for import of DAP (di-ammonium phosphate) fertilizer, which delayed finalization of contracts between international suppliers and domestic fertilizer companies, the government lost an opportunity to save a subsidy of `5,555 crore in 2010-11, CAG found in its audit. Photo: Pradeep Gaur/Mint

Policy announced in 2010 has failed to promote a balanced use of fertilizers and growth of indigenous industry, says government auditor in report

New Delhi: The nutrient-based subsidy (NBS) policy announced in 2010 has failed to promote a balanced use of fertilizers and growth of indigenous industry, the Comptroller and Auditor General of India (CAG) said in its performance audit submitted to Parliament on Friday.

By not fixing the benchmark price at a reasonable level for import of DAP (di-ammonium phosphate) fertilizer, which delayed finalization of contracts between international suppliers and domestic fertilizer companies, the government lost an opportunity to save a subsidy of 5,555 crore in 2010-11, CAG found in its audit.

“There was no monitoring mechanism in the department of fertilizers (DoF) to ensure prices fixed by fertilizer companies were based on their cost of production and that these were reasonable," the government’s auditor said.

Observing that the NBS policy reduced the subsidy burden on phosphatic and potassic fertilizers from 39,452 crore in 2009-10 to 29,427 crore in 2013-14, the CAG report said, “Indigenous production as well as imports of P and K fertilizers also declined during this period indicating lesser availability and consumption."

The CAG report said there was no clear roadmap in the DoF to achieve the NBS objectives and the policy did not succeed in checking the imbalanced use of fertilizers.

The use of nitrogen-based fertilizers nearly doubled between 2009 and 2013, the CAG observed, adding that farmers preferred urea (containing nitrogen) because it was cheaper than phosphatic and potassic fertilizers. “Such a practice had an adverse effect on soil fertility. Thus, NBS policy did not promote balance fertilization," it noted.

The policy of freeing prices of phosphatic and potassic fertilizers, while retaining price control over urea, distorted the consumption equilibrium, the CAG report said, adding that while the price of urea increased by only 1% between 2010-11 and 2013-14, the price of phosphatic and potassic fertilizers increased between 104% and 251%.

“It was natural for farmers to substitute urea for P and K fertlisers, which resulted in a skewed consumption," the CAG report said.

The CAG’s audit found that fertilizer companies were unreasonably fixing retail prices on imported fertilizers. For instance, Indian Farmer’s fertilizer Cooperative Ltd (IFFCO) added 142 per tonne towards “loss on sale of fertilizer bond" as a cost component for fixing maximum retail price of imported DAP between 2011 and 2012. “The financial impact of above loading was 9.89 crore," it said.

In its recommendations, the CAG’s report asked DoF for a critical review of pricing urea, setting quantifiable targets for achieving NBS goals, and verification of cost data of fertilizer companies.

Interestingly, the ministry of chemicals and fertlizers informed Rajya Sabha on Friday that the department has finalized a note on the new urea policy of 2015 and sent it to the cabinet committee on economic affairs for approval on 5 May.

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