Sensing Govt plan to cut subsidies, fertiliser industry take up arms

Sensing Govt plan to cut subsidies, fertiliser industry take up arms
NAVIKA KUMAR

NEW DELHI, FEB 23: With the Union Budget around the corner and the axing of various subsidies almost certain, the fertiliser industry is up in arms against the Government. Nearly Rs 1,500 crore on account of unpaid subsidies to fertiliser units is still locked up with the Government. And this is on the decontrolled phosphatic fertilisers like DAP and MoP which are supposed to be left to the market forces.

Punjab, Madhya Pradesh and Bihar have the worst track record in clearing dues for the fertiliser sales in their state. This has resulted in severe liquidity problems for units supplying to these states.

``Nearly 35 signatures are required to be obtained from various officials in the state governments to certify sales before the Union Agriculture Ministry gives the industry any money,'' says an irate Pratap Narayan, Director-General of Fertiliser Association of India (FAI).

``In fact, the industry would be better off if it could be left free to fix the prices after deducting concession amount, if any, given by the government. This will be in line with the true spirit of decontrol. Also subsidy payments should be made on dispatches of phosphatic fertilisers as in the case of urea,'' says Narayan.

Despite decontrolling of phosphatic and potassic fertilisers since 1992, the Government continues to fix the farmer's price, though under the garb of recommended price. It also fixes the ad hoc rate of concession and the sum of the two usually does not add up to the reasonable cost of production and distribution estimated by the industry. To add to this, provisional rates are not finalised for a long time with the result that payments are held up for subsequent seasons.

The flip-flop in the policy and its adverse consequences on the industry are clear from the following facts. After having announced the rate of concession for 1997-98 at Rs 3,750 per tonne of DAP which, coupled with reasonable price fixed during kharif 1997, led to sharp increase in consumption. However, the Government arbitrarily reduced the rate of concession by Rs 250 per tonne in February 1998 retrospectively with effect from October 1, 1997, which is now a subject matter of a petition in the Delhi High Court.

For kharif 1998, it was notified on April 2 that the rates of concession would be intimated after cost of production and import are worked out and that the Government had agreed to bear additional subsidy to keep prices pegged at the present level. In the meantime, `on account' payments would be made at the rates of concession approved for rabi 1997-98. As a result, the uncertainty continued throughout the season and the final rate for kharif was announced only on December 28, 1998, ie three months after the season was over. The rates of subsidy announced were significantly higher than the rate prevailing in rabi 1997-98 on which `on account' payment continued. For instance, for DAP the rate was increased from Rs 3,500 to Rs 4,400 and proportionately on other complex fertilisers. This resulted in significant under-payment during the period and consequent liquidity problems.

On August 28, 1998, the Government notified fixed rates of concession from October 1, 1998 to March 31, 2000, leaving the industry free to fix the retail price. This being in conformity with the spirit of decontrol, the industry welcomed it. However, before even the ink could dry, this policy was reversed in September 1998. It was announced that for rabi 1998-99, the retail prices would remain at the same level as in kharif 1998 season.

However, it was indicated that the rate of concession for DAP, MoP and complexes would be announced later. While announcing the rate of concession in December 1998 for kharif 1998, it was indicated that rate for rabi 1998-99 would be decided on a quarterly basis after taking into account the actual behaviour of the exchange rate and the price of ammonia and phosphoric acid. Pending this, it was also indicated that for the quarter October-December, the rate of concession for making 80 per cent `on account' payment would be those applicable for kharif 1998. For thesecond-half of rabi January 1, 1999 to March 31, 1999, the rates of concession for making `on account' payment would be the final rates worked out for the first half of rabi.

As matters stand today, even 14 months after the first quarter and 11 months after the second quarter, final rates have not yet been notified by the Government. What is worse is that 20 per cent payment amounting to Rs 880 per tonne of the DAP and corresponding amount for other products is still pending.