This signals a drastic pruning in subsidies and allocations by Rs 3,954 crore for the entire agriculture sector including chemicals and fertilisers. The total Plan expenditure approved by the Planning Commission for the department of agriculture and cooperation in 1999-2000 is only Rs 1,963.25 crore as against Rs 1,956 crore in the previous year. The proposed rehabilitation package for cooperative banks at an estimated cost of Rs 6,700 crore is not likely to find place in this budget.

Besides, the government has decided a reduction of Rs 2,208 crore on food subsidy, Rs 372 crore reduction in sugar subsidy and Rs 682 crore reduction in subsidy earmarked for urea.

As the rehabilitation package for cooperative banks will not be on the agenda, the budget session is likely to pass an amendment to the Banking Regulation Act forthe operation of the National Cooperative Bank of India.The Fertiliser Association of India (FAI), commenting on the need for subsidy has stated that fertiliser subsidy is an inevitable element in the overall scheme of price support to agriculture. This subsidy is due to the failure to increase consumer price of urea to reflect the reasonable cost increase for the industry and the runaway inflation in the cost of feedstock, utilities and services leading to a sharp increase in cost of production and distribution over which the industry has no control as these are all provided by government agencies.

FAI director-general Pratap Narain said that it will be seen that while the cost of major inputs has increased manifold, the adjustment in the urea prices has been insignificant during the period, resulting in a widening gap between sales realisation and cost of sales. He suggested that in order to check urea subsidies under reasonable limits, the Government should think of increasing urea prices in small dosesover a period of time to prevent any adverse effect on consumption and the prices of various inputs including hydrocarbons, utilities namely power, water and services such as railways freight should be contained or even reduced as recommended by JPC in 1992.

For instance, if the urea plants in India were to be charged energy at the same rate as to the joint venture in Oman, then the saving in energy cost alone and consequently in subsidy would be a whopping figure of Rs 5,800 crore per annum. The deregulation of hydrocarbon prices in September-October 1997, led to a sharp increase of about Rs 1,500 crore per annum in the subsidy bill. Even prior to this, the increase in feedstock cost has been more than the net increase in subsidy.

Narain stated that while the fertiliser sector gets the blame for increase in subsidy, the crude oil sector has been getting unwarranted boost to its profitability. The bulging oil pool account surplus is a clear indicator. Even if extra resources have to be provided for thecrude ol sector, it is far better to make it transparent and give the money directly instead of routing through fertiliser industry and the subsidy mechanism, as the latter turns out to be costlier considering various value based taxes and interest on working capital, he alleged.

Narain said that that the Government should think of putting a ceiling on high capacity utilisation of new gas-based urea plants beyond which capital-related charges should be fixed at a uniform of Rs 1,000 per tonne, instead of considering reassessment of capacity, reducing depreciation norms, reimbursement of interest on long-term loans on actual basis outside RPS and reducing depreciation allowance. This measure would result in considerable saving on subsidy and the resultant farmgate cost would be less than the farmgate cost of imported urea even at current low global rices. In respect of other elements of cost, like repairs, maintenance, salaries, chemicals and stores, selling expenses should be updated and linked to variousindices. Similarly, the equated freight system base on rational ECA allocation should continue.

Narain also suggested bringing back CAN, ammonium sulphate and ammonium chloride under RPS, removal of ceiling on selling prices for decontrolled fertilisers, removal of discrimination against SSP in fixing subsidy and payment of subsidies to companies on receipt of monthly bills based on despatches of decontrolled fertilisers. Comparatively, the sugar industry has demanded raising of import duty on sugar to 50 per cent, levy of countervaling duty on import of molasses at the rate of Rs 500 per tonne, reduction of excise duty on molasses to Rs 170 per tonne, 5 per cent deduction in Modvat credit on inputs, customs duty exemption for captive power generation plans, suitable amendments under section 32 of I-T Act be ensured so that the seasonal industries like sugar are exempted and are not put to avoidable losses.