You are here: Home » Economy & Policy » News
Business Standard

PM may be dragged into Alagiri-Jena tiff

Standoff after Alagiri ignored Jena's letters alleging misuse of fertiliser subsidies by the industry

BS Reporter  |  New Delhi 

Srikant Kumar Jena, minister of state for chemicals and fertilisers, has written several letters to his Cabinet minister M K Alagiri, alleging misuse of by the industry and has repeatedly asked the senior minister to intervene as fertiliser companies continue to make windfall profits at the cost of farmers.

This follows a friction between the two ministers since July last year, when Jena virtually complained against his senior colleague to at a Cabinet meeting.

The may need to intervene if the relations between two ministers in the same ministry worsen any further.

When reporters asked Alagiri today in Chennai about the spat between him and his junior, all he would say was: “Ask the

A report by the Headlines Today (HT) television channel had pointed out to irregularities in the fertiliser business and had alleged that Alagiri kept silent, despite his deputy minister raising alarm several times.

Jena had, HT said, written five notes to his senior colleague between March and August 2012, when prices of fertilisers had increased astronomically. This is despite the subsidy given by the Centre to keep prices low. Jena wrote: “The government has been releasing subsidy for the benefit of farmers so that the retail prices remain at reasonable levels and there is no runaway increase in retail prices. The decontrol in retail prices does not imply that the companies are at their free will to gain undue profits at the cost of poor farmers. If it is so, then there is no meaning of nutrient-based subsidy.”

Jena suggested in the same note that fertiliser firms were pocketing roughly one-third of the total subsidy released for the farmers. He gave empirical evidence to support his claim. However, Alagiri simply ignored the letters, according to HT.

Analysts say political warfare, rather than economic logic, was behind Jena’s assertions.

In the case of MOP (muriate of potash) fertiliser, Jena suggested that companies were pocketing about Rs 5,500 per tonne out of a total subsidy of Rs 16,054 per metric tonne released by the government in FY12.

On August 3, 2012, Jena again wrote that “the companies were making very high profits by selling the fertilisers at unreasonably high prices”. He emphasised that Rs 4,000 to Rs 5,000 of subsidy on per metric tonne of DAP (di-ammonium phosphate) and approximately Rs 6,000 subsidy per tonne of complex fertiliser was being siphoned off by private companies.

On the allegations that the industry had made profits between Rs 4,500 and Rs 5,500 on DAP and MOP, an analyst pointed out that the depreciation of the rupee last year, increased margins of fertiliser dealers and the increased interest outgo for the industry due to delayed payments from the dealers as well as the delay in subsidy might have been responsible for the rise in prices.

“In order to counter these factors, the industry had to raise profit margins but margins are still under Rs 1,000 per tonne, which is close to 3 per cent of the retail price, which is quite reasonable,” said an analyst.

Jena said DAP and MOP were pumped into the distribution chain before March 2012 as the subsidy was to come down. The analyst justified the move saying that it was done in order to maintain the prices of DAP and MOP at February 2012 levels that was close to Rs 18,000 per tonne.

According to him, the government reduced subsidy from Rs 18,000 per tonne to Rs 14,000 and hence the price had to go up to make up the difference. “Moreover, the 15-20 per cent depreciation in the rupee during the same time negated the fall in international prices,” he added.

By June, the farmgate prices of the two crucial fertilisers breached the Rs-24,000 mark.

Officials of the Department of Fertilisers remained elusive, while industry representatives from the Fertiliser Association of India (FAI) chose not comment saying they will take up the matter at appropriate levels.

The Alagiri-Jena standoff comes after the turf war between the environment and finance ministries over clearance to large industrial projects.

First Published: Wed, January 23 2013. 00:53 IST
RECOMMENDED FOR YOU