Pricing fertilizers

Pricing fertiliser
PITY THE FINANCE MINISTER. While deciding to raise the issue price of fertilisers modestly, Mr Jaswant Singh may have scarcely imagined that howls of protests from a cross-section of MPs and others would greet the proposal. The demand for a roll-back is gaining momentum. Those against the hike, for reasons political or otherwise, seem to be keen to demonstrate their allegiance to farmers' cause. Mr Jaswant Singh's explanation that in view of the likely increase in naphtha and gas feedstock, the ballooning fertiliser subsidy (over Rs 12,000 crore) has to be contained and that the benefit of subsidy did not fully percolate to farmers failed to cut ice.
In defence of Mr Jaswant Singh, he only acted on the Expenditure Reforms Commission (ERC) recommendation that fertiliser prices be raised 7 per cent every year and move towards decontrol over the next five years. Following last year's Budget, maximum retail prices of urea (a controlled fertiliser) and DAP, MoP and complexes (decontrolled fertilisers) were increased and merely repeated this year. It is recognised that given the current emphasis on international competitiveness, global marketing, import liberalisation, import price parity and free trade, the individual retention price scheme for urea producers is out of tune with economic reality. Thus, the Government decided to put in place from April 1 a new pricing policy for urea units (based on the ERC recommendation) to move in the direction of parity with international prices based on the use of the most efficient feedstock and the state-of-the-art technology.
Further, efforts to contain the fertiliser subsidy are being made by plugging inefficiencies in the production system which were earlier passed on to the government by producers, and periodic increases in issue prices are part of the strategy. These efforts deserve the support not only of policy-makers but also of those keen to make Indian agriculture globally competitive. It is in the context of global competitiveness that one must take a fresh look at the subsidy regime. Subsidies may per se not be bad or undesirable; they are a reality the world over. Farm subsidies granted by OECD countries in 2001 were $311 billion, that is, almost one billion dollars a day. In the Indian context, the question is of affordability and whether subsidies actually reach the intended beneficiaries. At about 90 kg per hectare, India's fertiliser consumption per unit of farm land is among the lowest in the world. Even in the country, there is a great deal of variability in fertiliser consumption, which is surely telling on productivity in many regions.
A sound delivery system with appropriate pricing is the way forward. An effective medium through which the Finance Minister can deliver the benefit of fertiliser subsidy to farmers is the Kisan Credit Card. Already, over 2.7 crore KCCs have been issued, and since its launch in 1998-99 over Rs 64,000 crore has been disbursed. It may be worthwhile for the Finance Ministry to explore how to tie in the use of KCCs in the new pricing policy to be introduced from next fiscal (in the form of a group-based concession scheme depending on vintage and feedstock) so that the benefit of subsidised price flows directly to farmers.