One-Sided View

This is with reference to the article Look who's sermonising by Dr Ashok V Desai (BS, August 13). As the observations on fertiliser subsidy are based merely on impressions rather than on facts, we would like to clarify the position.

It has been mentioned that the subsidies go to the fertiliser producer as well as the farmer. It is not clear how it has been concluded that part of the subsidy, the extent of which varies from time to time goes to the producer. Apparently, it is based on the theoretical premise that to the extent domestic cost is higher than the import parity price, the industry is being subsidised. This is totally erroneous, as subsidy represents only the difference between reasonable cost of production and distribution and consumer price - all fixed by the government on a normative basis. International prices, are not cost based but fluctuate widely depending upon the demand-supply balance, in which the level of import by India and China plays an important role. Thus, in the second half of eighties, when India virtually eliminated imports of urea, the C&F price dropped to below US $100 per tonne, while during the last three years when we increased our imports the prices rose sharply to a peak over US $240 per tonne. The former was a dumping price (sometimes even below their cost of production) while the latter was exploitative price.

 

With control over consumer price, how can domestic industry survive by suffering losses at dumping price, while even when the prices rise they cannot make good the earlier losses, being constrained in their realisation at the low prices fixed by the government.

Secondly, even if we were to make a comparison between the relative, costs of production, it is not on all fours. The feedstock (gas, naphtha and fuel oil) price in India is many times higher than gas (which is the only feedstock) price in exporting countries. Interest rates and duties are significantly higher, as also cost of various infrastructure facilities in India becomes part of the project. Despite these handicaps, in the last two years, the farm gate cost of imported urea was about Rs 3,000 to 4,000 per tonne higher than the weighted average cost of domestic urea. Thus, far from being subsidised the domestic industry is being in fact taxed.

Thirdly, while everybody seems to be exercised about high fertiliser subsidy, no one raises a finger about artificial increase in the administered price of various inputs and utilities. The recent 30 per cent increase in the price of naphtha, fuel oil and LSHS alone has added about Rs 550 crores per annum to the urea subsidy bill, which benefits neither the industry nor the farmer but only increases revenue of public sector oil companies and constitutes mere intra-economy transfer.

The conclusion that abolition of subsidy will not raise fertiliser prices proportionately is also erroneous. The reasonable cost of production/import and distribution has to be covered if supplies from either source have to materialise, whether paid entirely by farmers in a decontrolled situation or partly by farmers and partly as subsidy by the government in a controlled situation. Removal of subsidy is bound to result in corresponding increase in farmer price with consequent adverse repercussions on consumption. Such increase will be steep because of the artificially suppressed prices since eighties.