7.1
The sale price 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, which
is the main nitrogenous fertilizer
constituting about 60% of the
total fertilizer consumption in
the country, is under statutory
price control. With effect from
29.1.99, the farmgate price of
urea has been fixed at Rs.4000
per tonne excluding local levies.
Notwithstanding this increase,
the farmgate price of urea is
amongst the lowest in the region
and is heavily subsidised.
7.2
Payment of subsidy in respect
of controlled fertilizers is regulated
through the mechanism of Retention
Price-cum-Subsidy Scheme (RPS).
RPS enables the manufacturers
of controlled fertilizers to recover
their normative cost of production
along with a reasonable return
on networth. The cost of production
of various fertilizer units differ
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. At present,
urea, being the only controlled
fertilizer, is covered under RPS.
7.3
The RPS provides for fixation
of retention price of each controlled
fertilizer 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
networth 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. During
the currency of the 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. 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. 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.
7.5
The subsidy paid on indigenously
produced and imported fertilizers
from the year 1985-86 onwards
is indicated below:
(Rs. Crore)
| Year |
Subsidy
on Indigenous Fertilizers |
Subsidy
on Imported Fertilizers |
Total
Subsidy |
| 1985-86 |
1600.00 |
323.71 |
1923.71 |
| 1986-87 |
1700.00 |
197.12 |
1897.12 |
| 1987-88 |
2050.00 |
113.95 |
2163.95 |
| 1988-89 |
3000.00 |
200.70 |
3200.70 |
| 1989-90 |
3771.00 |
771.10 |
4542.10 |
| 1990-91 |
3729.73 |
659.33 |
4389.06 |
| 1991-92 |
3500.00 |
1299.60 |
4799.60 |
| 1992-93 |
4800.00 |
996.11 |
5796.11 |
| 1993-94 |
3800.00 |
598.97 |
4398.97 |
| 1994-95 |
4075.00 |
1166.00 |
5241.00 |
| 1995-96 |
4300.00 |
1935.00 |
6235.00 |
| 1996-97 |
4743.00 |
1163.08 |
5906.08 |
| 1997-98 |
6600.00 |
721.96 |
7321.96 |
| 1998-99(BE) |
6000.00 |
983.00 |
6983.00 |
| 1998-99(RE) |
7360.00 |
238.00 |
7598.00 |
| 1999-2000(BE) |
8000.00 |
750.00 |
8750.00 |
(B.E.).
= Budget Estimate (R.E.) = Revised
Estimate
7.6
The steady increase in fertilizers
subsidies over the years has largely
been the result of increasing
production/consumption and increases
in the inputs of indigenous fertilizers
and prices of imported fertilizers
from time to time. The cost of
various inputs/utilities, such
as coal, gas, naphtha, rock phosphate,
sulphur, ammonia, phosphoric acid,
electricity, etc. as also the
cost of 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,
necessitating constant upward
revisions in the retention prices.
The selling prices of fertilizers
to the farmers, however, remained
almost at the same level between
July 1981 and July 1991. The Government
effected an increase of 30% in
the issue prices of fertilizers
in August, 1991 after a gap of
a decade. The selling price of
urea, which was reduced by 10%
in August 1992, was revised upwards
by 20% in June 1994 followed by
another increase by 10% with effect
from 21.2.97. However, even this
price hike did not materially
alter the position in terms of
the absolute, there has been a
decline in amount of annual subsidy
bill, because of the steady growth
in production to meet the growing
demand and rise in the costs of
inputs. However, due to a sharp
fall in the international price
of urea there has been a decline
in subsidy for imported urea from
1996-97 onwards.
7.7
Consequent upon the decontrol
of phosphatic and potassic fertilizers
w.e.f. 25.8.92, the prices of
these fertilizers registered a
sharp increase vis-à-vis the price
of urea. However, in order to
cushion the impact of increase
in prices of these fertilizers,
the Ministry of Agriculture introduced
a scheme of Concession on sale
of decontrolled fertilizers. In
a major policy initiative taken
by the Government on 5.7.96, the
scale and coverage of the special
concession was substantially increased
to give impetus to the stagnating
demand for these fertilizers and
to ameliorate the nutrient imbalance
in the soil which is essential
for sustaining the desired growth
in agricultural productivity.
Again in 1997-98, along with the
increase in urea price effected
on 21.2.97, it was decided to
increase w.e.f. 1.4.97, the concession
on indigenous DAP from Rs.3000
to Rs.3750 per tonne and on imported
DAP from Rs.1500 to Rs.2250 per
tonne, on MOP from Rs.1500 to
Rs.2000 per tonne, on SSP from
Rs.500 to Rs.600 per tonne and
proportionately for indigenous
complex fertilizers. These measures
were calculated to induce the
farmers to optimise the use of
the three plant nutrients. The
rates of concession for Rabi 1997-98
effective from 1.10.97 were reduced
by Rs.250 per tonne in respect
of DAP and proportionately in
respect of indigenous complex
fertilizers. Notwithstanding this,
the consumption of phosphate and
potash registered an increase
from 28.44 lakh tonnes and 8.84
lakh tonnes in 1992-93 to 39.71
lakh tonnes and 13.71 lakh tonnes,
respectively in 1997-98. For Kharif
1998, based on cost evaluation
by the Bureau of Industrial Costs
and Prices (BICP), the level of
concession has been fixed at Rs.4400
PMT for indigenous DAP, Rs.3400
PMT for imported DAP, Rs.3000
PMT for MOP and Rs.600 PMT for
SSP. The level of concession has
been proportionately fixed for
various complex fertilizers taking
into account the NPK content in
these fertilizers. During 1997-98,
an expenditure of Rs.2596 crore
was incurred under the scheme.
During 1998-99, as against the
B.E. of Rs.3000 crore, a R.E.
of Rs.3800 crore has been proposed.
For 1999-2000, a budget provision
of Rs.4500 crore has been proposed.
7.8
Given the importance of fertilizer
pricing and subsidisation in the
overall policy environment impinging
on the growth and development
of the fertilizer industry, the
need for streamlining these policies
has been felt for a long time.
A High Powered Fertilizer Pricing
Policy Review Committed was constituted
to review the existing system
of subsidization of urea, suggest
an alternative broad-based, scientific
and transparent methodology, and
recommend measures for greater
cohesiveness in the policies applicable
to different segments of the industry.
The report of the Committee was
submitted on 3rd April 1998. Inter-ministerial
consultation has been initiated
on the recommendations of the
Committee. Dialogue with the industry
has also started regarding reassessment
of installed capacity of urea
manufacturing units and formulation
of a Modified Retention Price
Scheme (MRPS).
