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Don't run down a fertile sector

india Updated: Mar 20, 2007 01:30 IST

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The old saying about one man’s price being another man’s income rings true in every industry in a market-oriented economy. But situations can throw up dilemmas where the government plays a role in balancing the interests of various social and economic groups. It is quite clear the fertiliser industry is a victim of government whims considering that it is so vital to the food security of a nation of one billion people. Fertiliser subsidy became a whipping boy of fiscal oversimplifications in the early 1990s, when India was desperately trying to cut the fiscal deficit, which was over 8 per cent of the GDP. Much water has flown down the Yamuna since, and the deficit, now under 4 per cent, is relatively a less worrisome factor. But fertiliser subsidy, seen by some lobbies as pampering industry rather than farmers, is still viewed with suspicion, despite the industry being happy if it is paid directly to farmers.

The industry says that against an estimated requirement of Rs 48,000 crore in 2007-08, the budget provision is only Rs 22,451 crore. This is on top of outstanding subsidy dues of Rs 15,000 crore to the industry. The government loves the subsidy in order to keep agricultural prices down and manage the costs of farmers. But at the same time it seems to be pussyfooting on an industry that faces the threat of imports on the one hand and a lack of incentives to build capacities on the other. Surely, a policy of drift is not what the government wants. If the State intervenes in an industry in the larger social interest, it logically follows that positive interventions are needed to help the industry for precisely the same reason. The fiscal context has changed, inflation is high, food prices are crucial.

In such a backdrop, leaving the fertiliser industry out of a beneficiary regime is potentially harmful to both food security and the long-term competitiveness of the industry. The government has recently stepped in to help steel makers who have been hit by high iron ore prices by imposing an export duty. A similar attitude is called for to help fertiliser companies. After all, if steel is strategic, so are fertilisers. If subsidies are not desirable, the government needs to work out a systematic long-term roadmap to ensure that all interest groups concerned are honoured and protected in the transition.