7.1  The farmers prices of controlled fertilizers are fixed by the Government of India [Department of Agriculture & Cooperation] under the Fertilizer [Control] Order,1985 issued under the Essential Commodities Act, 1955. At present, only Urea is covered under statutory price control.

7.2   As explained in para 1.5.1, the Retention Price-cum Subsidy Scheme (RPS) enables the manufacturers of controlled fertilizers to recover their normative costs of production alongwith a reasonable return on investment. The cost of production of various fertilizers differs from unit to unit and even from month to month, depending upon the health and vintage of the plant, the feedstock used. the levels of capacity utilisation, energy consumption, distance from the source of feedstock/raw materials, cost of inputs, etc.

7.3 The RPS provides for fixation of retention price of each controlled fertilizer unit-wise after taking into account the normative capacity utilisation prescribed by the Government and a combination of norms and actuals in respect of various cost elements and expenses. Pre-tax return on net worth corresponding to post tax return of 12% is given as a part of the retention price after covering various elements of cost.

7.4 The retention prices of controlled fertilizers are normally fixed once in three years after scrutinising the cost data of the units for three years for which audited accounts are available. The norms of the Sixth Pricing Period commencing from 1.4.1991 have however, been approved for a period of 6 years with a provision for updating the cost data as on 1.4.1994. The Seventh Pricing Period will accordingly commence from 1.4.1997. The office of FICC has invited the suggestions of the industry in regard to the changes required in the pricing policy for the next period.

7.5 During the currency of a given pricing period escalations/ reductions are provided to reflect variations in the prices of major inputs. Escalations are also allowed in respect of certain other items of cost [viz. salaries and wages, chemicals and consumables, repairs and maintenance, overheads etc.] where there is a significant variation during the currency of the pricing period due to unavoidable factors.

7.6 In addition to the retention price subsidy, equated freight subsidy is paid to the manufacturers of controlled fertilizers to cover the cost of transportation from the production points to the consumption centres.

7.7 Since the consumer prices of both indigenous and imported fertilizers are fixed uniformly, subsidy is also paid on imported fertilizers in order to bridge the difference between the cost of imports and the statutorily fixed consumer price.

7.8 The subsidy paid on indigenously produced and imported fertilizers from the year 1985-86 onwards is indicated below :

(Rs. Crore)

(B.E.). = Budget Estimate

 7.9 The steady increase in fertilizers subsidies over the years has mainly been on account of larger volumes of prodution/ consumption and rising cost of the inputs of indigenous fertilizers and the procurement of imported fertilizers. The costs of various inputs/utilities, such as coal, gas, naphtha, rock phosphate, sulphur,ammonia, phosphoric acid, electricity, etc. as also the cost transportation went up significantly during the eighties. The gas-based fertilizer units commissioned during this period also involved higher capital investment per tonne of installed capacity, which had to be compensated through retention prices. The selling prices of fertilizers to the farmers, however remained almost unchanged between July 1981 and July 1991. The Government effected (in increase of 30% in the issue prices of fertilizers in July/August 1991 after a gap of a decade. The selling price of urea, which at the time of the decontrol of phosphatic & potassic fertilizers, was reduced by 10% in August 1992, was raised by 20% in June 1994. The annual subsidy bill has, however, continued to rise because of growth in production and imports.