Fertiliser Compulsions

But there are unavoidable implications for the domestic fertiliser industry, despite temporary exemptions permitted under anti-dumping, anti-subsidy or safeguard provisions and through variable import duties. This is especially important for non-gas based plants making urea which will be rendered non-viable through cheap imports. Figures have been floating around on what percentage of plants is likely to close down.

However, these computations require a global price for urea as benchmark and assumptions about global prices vary widely. In part, this is because the impact of China and India simultaneously entering the market is not clear. Subject to this, 20 to 25 per cent of urea producing units are certain to close down.

 

This raises two questions. First, in the transitory period till 2008 or 2010, is it possible to work out a close-ended subsidy mechanism for fertiliser units, perhaps based on feedstock prices, that is WTO-compliant and also rewards efficiency, however defined? Second, how does one cushion the impact of India entering the global market for 5 to 8 million tonnes of urea? This also has an internal angle in that domestic port capabilities and distribution networks are presently not equipped to handle such imports. Fears are also raised about threats to self-reliance in the food and fertiliser sectors.

This trigger of external trade liberalisation should be used as a catalyst to deregulate the fertiliser sector. At a policy level, debates about whether fertiliser subsidy benefits fertiliser companies or farmers (and that too, rich farmers), or eventually consumers have gone on endlessly and pointlessly. Subsidies for poor farmers or poor consumers need to be targeted properly and delivered transparently, not through the intermediation of fertiliser companies. Government expenditure through present input subsidies is inefficient and as a corollary, the government has no resources to spend on building rural infrastructure. Overall, there has been enough of talk, it is now time for some action.