Some solutions to longstanding problems turn out not to be solutions at all. This point is proved by the experience with fertiliser bonds, issued by the government to the fertiliser companies in December in lieu of part payment of the subsidy due to them. Strapped for cash, some of the companies have been selling the bonds, but have been able to do so only at a substantial discount to face value. This has meant that liquidity has remained a problem for the companies, while some of the subsidy money received has been lost in the bond sale. National Fertilisers Limited (NFL) has now written to the fertiliser ministry, complaining of the shortage of working capital and asking for the reimbursement of the losses on the sale of bonds. Other fertiliser companies, including those in the private and cooperative sectors, are equally affected by the liquidity crunch. Their biggest worry, shared by the fertiliser ministry, is that the mounting subsidy arrears are growing by the day and might force the industry to cut down on both production and imports. This could lead to fertiliser shortages, with an obviously adverse impact on agricultural production and, as a consequence, on the prices of food and other agri-products. | |
| The dimensions of the problem can be fathomed from the facts brought to the notice of the Prime Minister by the fertiliser ministry. It has pointed out that the budgetary allocation of Rs 31,000 crore for the fertiliser subsidy in 2008-09 would take care of no more than 35 per cent of the actual requirement. The ministry has, therefore, called for raising the allocation to at least Rs 50,000 crore, with a further scaling up to a staggering Rs 90,000 crore (or 2 per cent of GDP) through supplementary grants later in the year. As it seems highly unlikely that the government will be able to muster such huge resources, there is every danger that the fertiliser ministry will run out of money for subsidy payments after July, with predictable downstream consequences when it comes to the companies. If the government opts again to take the off-budget shortcut for part clearance of the dues through bonds, it will virtually be a death warrant for the industry. |
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| In any case, issuing bonds that cannot be traded at their face-value is tantamount to short-changing the fertiliser companies for no fault of theirs. The notable point here is that the galloping increase in fertiliser subsidy requirement, from under Rs 12,000 crore in 2003-04, when the urea price was last revised, to around Rs 90,000 crore now, has been the result of the government's reluctance to raise the farm-gate prices of fertilisers for all these years, though the cost of domestic production as well as imports has gone on increasing rapidly. The current sale price of urea, Rs 4,800 a tonne, is less than half the present domestic production cost of urea, reckoned at around Rs 10,000 a tonne, and just around one-fourth of the cost of imported urea, which works to be above Rs 16,000 a tonne. All this has made the fertiliser sector unattractive for fresh investment in capacity addition. Even some of the committed investments have been withdrawn or diverted to other sectors. Now that the fertiliser ministry has conceded its inability to handle the situation and has thrown the ball in the Prime Minister's court, it is for the latter to bail out a vital sector without whose prosperity, agriculture cannot progress. |
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