One of the politically sensitive issues on which the United Progressive Alliance government will have to decide soon is the subsidy increase on phosphatic fertilisers by up to Rs 1,000 crore (Rs 10 billion) to keep a check on domestic prices.
Fertiliser ministry officials have briefed the new minister Ram Vilas Paswan about the pending decision on the issue. The governments in the past have slashed fertiliser subsidies only to roll back the cut partially.
The subsidy on phosphatic fertilisers is already over Rs 5,000 crore (Rs 50 billion) and more than 20 per cent price hike has been necessitated in view of the near complete dependence on imported phosphoric acid and potash whose prices have skyrocketed.
Even before Paswan formally assumed charge, ministry officials, including the secretary, told him about the issue.
"We have told him that a large part of the hike in international raw material prices has to be absorbed by way of subsidy. The finance ministry needs to be convinced about this," an official told PTI.
He said every one-dollar increase in the world prices of phosphoric acid and potash translates into a subsidy of Rs 9 crore (Rs 90 million). Phosphoric Acid forms 65 per cent of the 'DAP' fertilisers and its prices this season have increased to $460 a tonne from the earlier $356 a tonne.
Indian buyers after hectic negotiations with the selling cartel, mostly from Morocco, managed to get the price reduced to $402 a tonne. India is world's largest consumer of phosphoric acid.
Potash imports are canalised mostly from Central Asia through Indian Potash Limited and its prices shot up to $185 from $124 a tonne in the past one year. The offer price was cut to $182 a tonne, but the overall increase over last year is still high.
Potash is primarily produced in the erstwhile Soviet Union countries, Canada and Jordan. Based on the distance and freight charges involved, India prefers to import it from Russia and Belarus.
Phosphoric acid is produced in Morocco, South Africa, Tunisia, Jordan and Israel. Mainly it is the Moroccan cartel which controls the world trade.
The government dictates pricing of fertilisers and gives subsidy to the production units. With rise in international prices, either the government has to raise subsidy or increase the prices at which farmers get the product. Alternatively, there has to be a combination of both.
The finance and fertiliser ministries generally do not see eye to eye on this issue.
The methodology for calculating the normative cost of production (NCOP) of DAP is being re-examined now. This is because of the increasing level of value-addition in the industry. In India, earlier (before the recent capacity additions by Oswal Chemicals and Fertilisers Limited and Indo Gulf Corporation), 85 per cent of phosphoric acid needs were imported. Now it is 65 per cent.
As the cost of production through rock phosphate is lower, industry average NCOP is expected to be lower too, resulting in declining concessions.
