Urea to come under NBS from Apr 1

The long-awaited move to bring urea under the Nutrient-Based Subsidy (NBS) scheme is likely to be announced in the upcoming finance budget, to be unveiled on February 28 even as the government would decontrol its prices gradually.

The committee of secretaries (CoS) under Planning Commission Saumitra Chaudhuri is currently working out a viable model to determine how the subsidy component would be fixed as urea production is based on different forms of feedstock such as gas, naphtha, fuel oil and coal.

“Urea decontrol would happen in 2011-12 from April 1. The CoS is working on various models to see how the subsidy can be harmonized as urea is dependent on various feedstock. Urea cannot be treated uniformly,” said a senior official of Department of Fertilizers told Business Standard.

After preparing the draft report, the CoS would forward it to the Group of Ministers (GoM) headed by Finance Minister Pranab Mukherjee. Earlier this month, the GoM had deferred the decision to decontrol urea prices in the wake of soaring food inflation. 

The government is looking at various options on how urea can be covered under NBS. It is looking at a uniform subsidy component on the basis of market driven price for gas-based industry. The industry has also suggested the government to explore the option of pooling for different types of feedstock.

Initially, while the freeing the prices the government is likely to maintain a benchmark for the industry beyond which the urea prices cannot be increased.

“We are ready to give an undertaking to the government that the urea prices will not be increased beyond a percentage. However, the government has to also recognize the cost of production,” said Satish Chander of Fertiliser Association of India.

De - canalization of urea imports would also take place once urea comes under the NBS regime. The government is also working at hiking the urea prices by 2-5 per cent in 2011-2012, officials said. At present, only authorized agencies can import urea into the country. 

Urea represents almost 50 per cent of total fertiliser products consumed in the country with an annual consumption of 27 million tonnes, out of a total fertilizer consumption of 55 million tonnes. Hence, the industry has been persistent on its demand to cover urea under NBS in the absence of which the full benefit of the reforms cannot be achieved.

Besides freeing up the prices, the industry is also eagerly awaiting how the investment policy for urea is upgraded by the government. At present, some of the companies are holding large-scale expansion due to absence of proper incentives.

The government had hiked the prices of urea by 10 per cent on February 18 last year from Rs 4,830 to Rs 5,310 a tonne, which was effective from April 1. The revenue foregone towards fertilizers subsidy payout in 2009-10 was Rs.8,010 crores, which was 3.22 per cent of the total revenue forgone compared to 6.3 per cent in 2008-09 which amounted to Rs.14,200 crore.