The idea behind controlling fertiliser prices in India was to encourage demand. In the event, what it achieved was a severely constricted supply. And it comes at a staggering cost: the Centre ended up paying Rs 95,000 crore as fertiliser subsidy in 2008-09, Rs 65,000 crore more than what it had budgeted for. The decision to decontrol prices of non-urea fertilisers from next April, therefore, had a very powerful argument working in its favour. But the partial decontrol leaves equally powerful questions unanswered. Half the subsidy last year went to fertilisers that are ostensibly off price controls. The move to free 18 of the 19 fertilisers used in the country gets somewhat diluted when it comes with an assurance that farm gate prices will not be allowed to rise abnormally.
That is a promise farmers can take at face value.
The government has kept the lid on fertiliser prices for eight years despite an unbearable cost push. The Indian farmer does not have a huge appetite for artificial soil nutrients — the Dutch use four times as much fertiliser per hectare as we do — but prices of the stuff that go into making fertilisers, principally fuel, have gone through the roof in the past decade. Especially in India, where around half the output uses expensive naphtha and fuel oil. Till the industry
significantly switches to natural gas, the cost pressure will remain inexorable. India has hardly any competitive
advantage in producing fertilisers, yet it has built up the world’s third largest capacity. Indian fertiliser companies have lived on artificial respiration for too long and may find it difficult to survive in the wild.
The significant reform to emerge from last week’s Cabinet decision is in how, henceforth, fertiliser companies will be compensated for selling below cost. The move to a nutrient-based subsidy ought to make it worth the companies’ while to produce complex fertilisers that can arrest falling — in some cases negative — productivity. It should also restrict the slide to an obsessive dependence on nitrogenous fertilisers at the cost of those built around phosphorous and potassium. The new subsidy also has place for secondary soil nutrients like sulphur, calcium and magnesium, and seven micronutrients. So far, India has been relying purely on imports to source souped-up fertilisers that can deliver a majority of these nutrients in one bag.