Fert Min mulling hike in urea fixed cost; subsidy may rise

Fertiliser subsidy on urea may go up by Rs 350 per tonne as fertiliser ministry is seriously considering industry's demand to raise the fixed production cost incurred by manufacturers.

According to the sources, fertiliser ministry is likely to propose an increase of Rs 350 per tonne in cost of production of urea as against the industry's demand for a hike of Rs 700 per tonne.

The proposal is being prepared for consideration of a group of ministers (GoM) headed by Agriculture Minister Sharad Pawar, they added.

Urea is sold at a maximum retail price (MRP) of Rs 5,360 per tonne to farmers. The government reimburses the difference between production cost and MRP to manufacturers in form of subsidy. India produces about 22 million tonnes of urea and imports 8 million tonnes to meet the shortfall.

In 2007, the government approved the New Pricing Scheme (NPS) Stage-III for urea units in the country. The scheme was originally effective from October 2006 to March 2010 and now it has been extended for three years. NPS III scheme was based on cost of production for 2002-03.

Sources said the Fertiliser Ministry is considering to modify this scheme after factoring in rise in fixed production cost over the years.

The ministry is planning to take this proposal before GoM in its next meeting, which may take place next month. The ministerial panel was set up to look into the pricing of urea.

During the first meeting of GoM in June this year, the fertiliser companies had made a presentation before the panel and demanded a hike in subsidy by Rs 700 per tonne on the grounds of increase in their fixed costs.

For a urea plant, the fixed cost mainly includes establishment cost, annual maintenance cost, working capital, salaries, interest and other items.

Government has provided Rs 70,585 crore as fertiliser subsidy in this year budget, but allocation is not sufficient to meet the total subsidy requirement.

Industry body FAI has recently said that another Rs 40,000 crore would be required for clearing the total subsidy payment including arrears of last year.