Even as the indifferent monsoon is threatening to affect crop sowing in the current season, the recent spike in the prices of some fertilisers and related developments in the fertiliser sector are adding to disquiet over kharif production prospects. The government’s move to slash subsidies on non-urea fertilisers early this year, coupled with the rupee’s depreciation, has led fertiliser companies to substantially hike the sale prices of decontrolled fertilisers, such as diammonium phosphate (DAP), muriate of potash (MoP) and mixed fertilisers. As a result, the retail prices of DAP have now gone up by about 24 per cent to around Rs 2,400 a tonne and those of MoP by a still higher margin, of nearly 29 per cent, to Rs 16,000 a tonne. At the same time, however, the government has chosen to keep the prices of urea, the fertiliser most consumed, unchanged, at Rs 5,310 a tonne. The fertiliser ministry tried to restrict, at least slightly, this expanding price differential by suggesting a marginal 10 per cent hike in urea prices — but the proposal failed to be approved by the Cabinet Committee on Economic Affairs, which instead referred it to a group of ministers.
This huge difference in prices will aggravate the imbalance in the use of the three major plant nutrients — nitrogen, phosphate and potash, with worrying consequences. Besides impairing soil health and lowering its fertility, a chemical imbalance would adversely affect farm output at a time when the consumer prices of agricultural items are already high. Some of the repercussions of these policy deficiencies are, indeed, already in evidence. The sales of phosphatic and potassic fertilisers have already turned sluggish. The industry expects the demand for these fertilisers to drop by 25 to 40 per cent in the current kharif season. The offtake of urea, on the other hand, is anticipated to swell by at least three to four per cent, if not more.
The genesis of these worrisome developments in the fertiliser sector is traceable to an enduring bias in the policy framework: it does not hold all fertilisers on a par. While the government decontrolled the prices of phosphatic, potassic and other non-urea fertilisers in 2010, when it switched over to the nutrient-based subsidy (NBS) system, urea was excluded from this move. Such lopsided policy hurts both agricultural and the government’s bid to curtail its fertiliser subsidy bill — which mounted to a whopping Rs 80,000 crore in the last fiscal. Even a 10 per cent increase in urea prices could have trimmed the fertiliser subsidy by Rs 1,500-2,000 crore. It is worth recalling that a similar increase in urea prices in April 2010 was absorbed by farmers without much grumbling, though there was a short-lived outcry from political parties. Thus, the best course available for the government today is to extend the NBS system to urea and decontrol its prices, to ensure that the subsidy and retail prices of urea move up or down in tandem with those of other fertilisers. Agricultural growth and output, already insecure, will otherwise be put in further jeopardy.