Fertiliser price mismatch

NBS teething troubles should not thwart further reform

Within days of changing over to the much-hyped nutrient based subsidy (NBS) regime for fertilisers, doubts have arisen about its success in achieving the twin objectives of reducing fertiliser subsidy and remedying the imbalance in fertiliser use. Being a half-hearted exercise in reform, the new policy has failed to improve price parity between urea and other fertilisers. This is essential to ensuring a balanced use of all the three nutrients — nitrogen (N), phosphorus (P) and potash (K). The NBS system, even while envisaging fixed subsidy linked to the nutrient content of different fertilisers, also simultaneously decontrols the farm gate prices of fertilisers other than urea. Though the government has asked the fertiliser industry not to hike the prices of decontrolled fertilisers by more than 5 to 6 per cent in the initial year of implementation of the NBS system, even this modest increase has upset the price mismatch between urea and other fertilisers, which is the root cause of higher application of N vis-à-vis P and K. While the 10 per cent hike in urea price by the government (after keeping it constant at Rs 4,800 per tonne since 2002) has meant an effective increase of only Rs 480 per tonne, the prices of phosphatic and potassic fertilisers have gone up by over Rs 600 to Rs 700 per tonne and those of complex fertilisers containing even the micro nutrients, such as sulphur, zinc and the like, by even a bigger margin. Thus, after the introduction of NBS, the disparity in the prices of different fertilisers has actually exacerbated. The situation may worsen when the industry’s commitment to maintain price discipline for one year is over. There is, therefore, little hope that the new system will adequately address the nutritional imbalance concerns.

That said, the NBS system is not in itself an unsound recipe for promoting need-based fertiliser use based on nutritional health of the soil and the requirement of different crops. That is why industry and agriculture experts welcomed it. The problem has arisen because of the government’s reluctance to also decontrol, or suitably hike, the price of urea. As long as the price of urea is pegged to an arbitrarily determined level, the mismatch in the pricing of different fertilisers would not go. If, on the other hand, the NBS regime is allowed to operate properly, it has the potential to promote competition among different fertiliser producers, encouraging them to come out with diversified products having situation-specific nutrient combinations and competitive prices. For, while the subsidy element is uniform for all fertiliser manufacturers, those having higher efficiency and low overheads can offer their products at relatively lower prices to corner higher market share. Such competition will ultimately benefit the farmers, improve soil health and lead to higher crop output. Another potential advantage of the NBS regime is that improved profitability and reduced time lag between the sale of fertilisers and realisation of subsidy by the manufacturers from the government can improve the fiscal health of the fertiliser industry. This is necessary to attract fresh investment and capacity addition which the sector needs desperately. This requires taking fertiliser sector reforms forward.