Home >Politics >News >UP polls pose fresh hurdles for urea price deregulation

New Delhi: The government’s plan to partially deregulate urea prices continues to face obstacles owing primarily to political and procedural reasons, two officials in the department of fertilizers (DoF) said.

A broad framework for the new policy is ready, they said. A committee of secretaries led by Planning Commission member Saumitra Chaudhuri has finalized a report on this.

But the report is awaiting chemicals and fertilizers minister M.K. Alagiri’s consent before it can be placed before a group of ministers (GoM) for a final decision.

Alagiri is opposed to the deregulation, one of the two DoF officials said, as such a move may lead to an increase in the price of urea and would be politically inexpedient.

“Alagiri is likely to place his opposition on record," the official said. “First, he is averse to the prospect of a price increase after deregulation. Second, decontrolling urea could have an adverse impact on fertilizer subsidy, just as (what) happened after non-urea fertilizers were decontrolled in 2010."

Alagiri has twice before placed on record his dissent on the subject.

On 4 February, Mint reported that Alagiri had written to finance minister Pranab Mukherjee asking him not to remove controls on urea and instead implement the next stage of a new pricing scheme (NPS).

Mukherjee heads the GoM that will decide on the matter.

“It is my view that modified NPS-III should be implemented in urea sector w.e.f. (with effect from) 1 October 2010," Alagiri had said in a 31 January letter to Mukherjee.

The term of NPS-III, due to end on 31 March 2010, was extended to 30 September 2010.

“It is pertinent to note that in the absence of immediate implementation of modified NPS-III, various units, including south-based units, may face financial crunch, which may seriously affect the availability of urea," Alagiri added.

This was followed by a similar letter to Prime Minister Manmohan Singh. The Times of India reported this on 15 February.

Prices of all major fertilizers other than urea were deregulated in April 2010 and brought under the nutrient-based subsidy regime.

The official cited earlier said Alagiri had dissented even during the process to decontrol non-urea fertilizers but the government went ahead with the move.

Alagiri could not be reached for comment.

Officials said the schedule of the forthcoming assembly elections in Uttar Pradesh (UP) could determine when the government decides to go ahead with decontrolling the maximum retail price of urea, which makes up for 55-60% of all fertilizers used in the country.

Elections in the state are scheduled to be held before May 2012 but the dates have not been finalized yet.

“Since the price of urea is a politically sensitive issue, it is unlikely that the government would go ahead with decontrol close to the UP elections," said the second DoF official. “If the elections are brought forward to October-November, the government could defer the decision on decontrolling urea prices till April."

But if the election is held as per schedule in 2012, the government could decontrol urea by October, the official said.

“Fertilizer subsidy is a significant portion of the total subsidy outgo of the government. Urea decontrol will impact subsidy outgo, and so is an important issue," said Srikant Kumar Jena, minister of state for chemicals and fertilizers. “The government will, therefore, have to work on it carefully."

Jena did not comment on the likely timing of such a move.

M. Govinda Rao, director, National Institute of Public Finance and Policy, disagrees.

“Fertilizer subsidy is not a direct function of price deregulation but depends heavily on price of feedstock like gas and naphtha," said Rao. “If the prices of gas and naphtha keep rising, subsidy will go up."

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