Saturday, August 27, 2011

Government’s proposes to decontrol urea prices and increase prices by 10 per cent.

Government’s proposes to decontrol urea prices and increase prices by 10 per cent. The empowered group of ministers on August 5 approved the Saumitra Chaudhuri Committee recommendations to decontrol urea and allow increase in prices by 10 per cent initially and later bring it under nutrient based subsidy by October.
The 10 per cent hike in per tonne over the current maximum retail price (MRP) of Rs 5,310/tonne could translate to an additional expenditure of up to Rs 530/- for farmers. From next year,  companies will have a free hand and farm gate prices of urea will be fixed by them. The fertiliser companies will also pass on any increases in gas pricing and additional taxes imposed directly onto the farmers.

This decision should be seen in the light of the startling revelations of the Comptroller and Auditor General of India’s “Performance Audit of Fertiliser Subsidy” report tabled in parliament on August 5, 2011 which found that 45 per cent of farmers pay more than the MRP and nearly 60 percent face problems in getting their season’s full requirement in time. It also pointed to the problem of artificial shortages created by dealers during peak seasons to hike prices much above the MRP. Instead of putting an end to black-marketing and corrupt practices, the government measure is only going to put the farmers at the mercy of fertiliser cartels. The CAG has also indicted the government’s fertiliser policy for deliberately pushing costly imports and turning away the focus from indigenous production of urea which is a key farm input. The present move by the government is despite strong indictment of the new pricing scheme for urea by the CAG.

Already the government had on July 8, 2011 by a notification, withdrawn any restraint on increasing prices of non-urea fertilisers by the companies and stated that the market price of non-urea fertilisers “will be open”. It rescinded an earlier notification of May 5, 2011  that had allowed companies to increase MRP of Di Ammonium Phosphate (DAP) by Rs 600/tonne in addition to the MRP prevailing then (Rs 10,750/tonne) and also a proportionate increase in MRP of complex fertilisers (corresponding to that in DAP). The MRP of DAP according to the May 5th notification would translate into Rs 11,470/tonne. In the light of the July 8th notification the MRP of DAP inclusive of VAT if calculated based on the imported cost of DAP at $650/tonne will translate into around Rs 14,300/tonne. This would mean an exorbitant increase of Rs 3550/tonne of DAP within the last two months. The government move on urea is coming at a time when already farmers are paying hefty amount for non-urea fertilisers and rising input costs are a disincentive to cultivation.

Urea is a key agricultural input. Decontrol of urea prices, like in the case of DAP and other complex fertilisers will put a big burden on the peasantry and costs of production will increase substantially.

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