Despite initial concerns expressed by a number of ministers, the cabinet on Thursday unanimously cleared a proposal to alter the nature of fertilizer subsidy and thereby partially unshackle fertilizer prices.
The extent of subsidy on a particular fertilizer, earlier based on the nature of the product, will now depend upon the quantity of nutrients it contains.
The government also raised urea prices by 10 per cent.
With the DMK, NCP and Trinamool objecting to the change, it took two hours to hammer out a consensus.
Fertilizer minister A K Alagiri (DMK) had been staying away from some cabinet meetings. But on Thursday, Prime Minister Manmohan Singh insisted on every minister considering the proposal, and addressed their concerns.
The government plans to intervene so prices of non-urea fertilisers are near the current price band, to protect farmers.
“Fertilizers have to be imported before the sowing season starts around April. Any delay would impact food security,’’ a minister said.
In a country where farmers form an important vote bank, moves to rationalise fertiliser subsidy has always been resisted. Trinamool and the DMK face polls in Bengal and Tamil Nadu next year. To spare farmers high fertiliser prices, the government controls the retail prices of fertilizers by providing subsidy. This annual subsidy is at Rs 49,980.25 crore.
Until now, subsidy was being given on urea as a whole. With urea cheaply available, farmers tended to overuse it to increase yields. This reduced soil fertility and made yields stagnate.
The new “nutrient-based” subsidy aims to give subsidy to the percentage of four key nutrients — nitrogen, phosphorus, potash and sulphur — in the fertiliser pack, according to the specific needs of the soil.
“It’s the right step. It will attract investments to industry,” said US Awasthi, MD of IFFCO, one of the country’s largest fertiliser cooperatives.