Revision of prices of nutrients in fertiliser to be proposed

Revisions in various nutrient fertilisers will be soon put up for consideration by the finance ministry as a subsidy rationalisation measure.
 
According to officials, the fertiliser department is on board on this proposal as urea price in particular has not been revised for long since 2010. On the other hand, subsidy on account of urea is increasing manifold, first direct subsidy for distribution and second  by providing natural gas on priority under the administered pricing mechanism.  
 
Therefore, hike in urea price has become very essential to cut down the subsidy. Officials explained the term of reference for the cabinet to take a decision on this was already formed during last regime of the government which will be once again presented to the new government with more recent development.

 

Similarly, there is a case for further bringing down the prices of other nutrients like nitrogen, potash and phosphates (NPK) in line with declining  international prices. Officials are of the view that with fall in international prices, the prices of potash and phosphates should come down further. This will also bring down the subsidy as the fixed subsidy component in the retail price will correspondingly come down.

India is one of the largest importers of fertiliser urea and non urea variety. Therefore the importers could negotiate better price and manage the fluctuating price rather than just entering into long term contracts. “Even if the importers enter into long term contracts there should scope for hedging  prices and revising it”, said an official source.

After receiving Election Commission’s nod, the Fertiliser Ministry in the month of March 2014  had moved the  Cabinet to reduce subsidy on potash inline with the fall in international prices. Accordingly, subsidy on potash came down to Rs 15.50 per kg from Rs 18.83 per kg earlier  with an overall impact on reduction of total subsidy on fertilisers by Rs 900 crore per annum .
 
For urea, the government in the month of January 2014 increased the fixed cost paid to urea by Rs 350 per tonne without affecting any increase in the rate of crop nutrient for farmers ( urea price).

The minimum fixed cost would be Rs 2,300 per tonne though this would not have any impact on urea prices. The base year for calculating fixed cost of urea has been changed from 2002-03 to 2008-09. For a urea plant, fixed cost mainly includes salary & wages, contract labour, repair & maintenance and selling expenses. Government has provided Rs 70,585 crore as fertiliser subsidy in this year’s budget.
 
An official source said, a 10% rise in urea prices would bring down the subsidy component by around Rs 1,600 crore. The government had last revised the urea prices on April 1, 2010 from Rs 4380 a tonne to Rs 5,310 a tonne.