News reports indicate that in view of the hardships faced by the farmers owing to the natural calamities in the country's different parts, the centre has decided to reimpose price controls on phosphatic and potassic fertilisers. Barely a month ago, the government had announced a revision in the extent of price support for these fertilisers, effective October. As these revisions had fallen short of the industry's expectations, both the manufacturers and the importers of phosphatic and potassic fertilisers were allowed to fix the selling prices themselves.

Though the policy-makers were against the freeing of prices, they had to go ahead with the decision for the following reasons. The rupee's depreciation has led to an increase in import costs. Most of the potassic fertiliser requirement for the country and almost the entire supply of rock phosphate, the raw material for phosphatic fertilisers, are imported. Hence most suppliers of these fertilisers began to witness negativecontributions, because while the selling price was fixed, costs had risen substantially. As a result, they decided to either cut production or restrict the supplies in the market.

The way out of the severe short supply would have been to increase the price support substantially to more than compensate for the rise in costs. But the government's budget estimates, which put the fertiliser subsidy at Rs 9,983 crore went awry. The urea price hike rollback led to an additional burden of Rs 1,600 crore and the increase in price support for phosphatic and potassic fertilisers increased the weight by another Rs 1,000 crore. A greater hike in price support would have led to a further burgeoning of the subsidy bill and the government wanted to avoid this.

Though freeing the prices would have helped to ease the short supply of the nutrients, prices would have risen by at least Rs 1,000 per tonne. The prices of phosphatic and potassic fertilisers are already at high levels, compared to the nitrogenous fertiliser --urea, and this has contributed to a progressive decline in these fertilisers' consumption. While the DAP consumption in 1991-92 was 4.5 lakh tonnes, consumption in the previous year was about 3.6 lakh tonnes, a decline of 20 per cent. In the same period, urea consumption went up progressively from 14 lakh tonnes to around 19 lakh tonnes, an increase of 35.71 per cent.

As a result, the NPK ratio has been worsening and this should be a cause for concern. The policy should, therefore, be directed at encouraging the use of phosphatic fertilisers like DAP and potassic fertilisers like MoP. The government's decision, though prompted by a different reason altogether, is a step in the right direction. But it remains to be seen how the centre will manage the burgeoning subsidy bill.

Rubber:

The hike in the rubber benchmark prices announced by the cabinet committee of economic affairs (CCEA) is a follow-up on the prime minister's assurance of a better deal for the country's rubber-growers. TheCCEA-approved benchmark prices of Rs 34.05 per kg for natural rubber of the RSS 4 grade and Rs 33.55 per kg for the RSS 5 grade are a substantial increase from the levels of Rs 24.90 and Rs 24.40 respectively.

The hike in prices became necessary owing to the current lull in international prices of natural rubber, which have also managed to push domestic rubber prices southwards. The revision has been justified on the grounds of cost escalation faced by the domestic rubber-growers. Analysts expect the benchmark price to form the basis for future governmental market intervention.

The State Trading Corporation (STC) has recently been given the mandate by the commerce ministry to purchase 20,000 tonnes of additional rubber from the open market. STC has also been asked not to sell its stock of 10,000 tonnes of rubber in the domestic market. While the new benchmark price and the directives to the STC will safeguard the domestic rubber-growers, one ought to spare a thought for the end-user industries.

Theupward price revision will severely affect the manufacturers of rubber products, especially tyre manufacturers since they would have to absorb the cost increase. International tyre majors like Bridgestone, Kumho, Pirelli and Continental AG are eyeing the Indian markets, and domestic companies including JK Tyre, MRF Tyres, Ceat Ltd and Apollo are feverishly expanding their capacities. These excess capacities are likely to lead to an oversupply situation in the tyre industry, making the task of passing on the hike in prices to the consumer all the more difficult. Furthermore, the price hike could also hamper the tyre industry's export prospects.

Reliance Telecom - Hughes Ispat:

News reports speculate that Reliance Telecom is in talks with Hughes Ispat for the basic telecom licence in Maharashtra. There is also conjecture regarding whether Reliance Telecom is mulling over an investment or an outright purchase option. Barring the lack of confirmation from both the concerned parties, the followingpoints must be pondered upon.

Reliance Telecom has a licence-fee obligation of only Rs 3,396 crore for the Gujarat basic telephony circle and it was promted to bid because of the state's high per capita income and low telephone penetration. On the other hand, Hughes Ispat has an obligation of Rs 13,909 crore and is slated to pay Rs 397 crore for the years one to five, Rs 795 crore for the years five to 10 and Rs 1,590 crore for the years 10 to 15. While the gargantuan licence- fee obligation in Maharashtra could be an excuse for Hughes Ispat to sell out, it could also prove to be a huge deterrent for Reliance Telecom to come in.

With contributions from Sarad Saraf, Percy Dubash & AG Krishnan