Tabulation of the major trends in the fertilizer subsidy policy of India is as follows
YEAROCCURENCE1991Price de-control for nitrogenous fertilizers.
30 percent increase in prices of fertilizers for high-income farmers.
No price increase for small and marginally poor farmers. 1992Decontrolled the import of fertilizers such as di-ammonium phosphate and muriate of potash.
Flat rate concession offered on these fertilizers. These measures led to an increase in the price of fertilisers and fall in consumption.
Retention Price cum Subsidy Scheme (RPS) was now confined to urea to ensure increased use of nitrogenous fertilizers. The price of urea fertilizers was reduced by 10 percent.
Subsidies were introduced on DAP and other complex fertilizers such as NP and NPK.1993Government allowed fertilizer manufacturers to import raw materials for the manufacture of DAP and other complex phosphatic fertilizers at reduced official exchange rate.
No custom duty was charged on these imports.
Subsidies continued on domestic phosphatic fertilizers.
Introduced subsidies on single superphosphate fertilizers.1994Due to de-control of prices of phosphatic and potassic fertilizers, the prices increased and this resulted in temporary shortage. The government to combat this took the following steps exempted the 15 percent duty charges on the import of fertilizers, exempted the custom duty on the import of phosphoric acid for fertilizer production,permission to import raw materials at the official exchange rates. Further subsidies were provided to bring relief to the farmers on account of increasing prices.
All other varieties of fertilizers were also removed from price control.
Some segments of the nitrogenous fertilizers belonging to low analysis group that were de-controlled in 1991 were brought back under control. (Schumacher and Sathaye, 1999)
Urea prices were raised by 20 percent. (Schumacher and Sathaye, 1999)
A total subsidy of Rs 4075 crores on indigenous fertilizers and Rs 1166 crores on imported urea was provided to the farmers. 1995Fluctuations in exchange rates and increase in international prices of urea has an adverse impact on the fertiliser subsidy budget.
To counteract the negative impact of increasing prices of DAP after de-control the subsidy on domestic DAP was increased from Rs 1000 per tonne to Rs 3000 per tonne and for imported DAP by Rs 1500 per tonne.
The existing plants are unable to meet the increasing demand for fertilizers hence there is increased import of potassic fertilizers. 1996Joint Parliamentary Committee (JPC) on fertilizer pricing suggested a ceiling of 110 percent capacity utilisation for payment of Capital Related Charges (CRC).
Committee of Secretaries (COS) recommended the setting up of a high powered committee to review the prevalent practice of subsidization of urea. 1997High Powered Fertilizer Pricing Policy Review Committee (HPC) set up.
C.H. Hanumantha Rao, the former member of planning commission was the chairman of this committee.
Purpose of the Committee was to review the subsidisation of urea and suggest an alternative broad based scientific and transparent methodology (nic.in, 2000).1998HPC submitted a report to the government recommending the discontinuity of the unit wise RPS for urea.
The committee also suggested a uniform Normative Referral Price (NRP) to be fixed for existing gas based urea units and also for DAP.
Other recommendations of the committee included
Feedstock Differential Cost Reimbursement (FDCR) to be provided to urea units that made use of coal, naptha and FOLSHS at the rate of 1750 per tonne and Rs 1300 per tonne.
Ceiling Farmgate Price (FGP) to be applied annually.
Difference between FGP and NRP plus FDCR to be paid as subsidy.
De-regulation of distribution of urea.
Setting up new urea units.
Computation of prices of fertilizers to be done on the basis of nutrient content.
Prices of nutrients other than N to be derived from the price of N in urea.
The NRP is calculated on the basis of Long Run Marginal Cost (LRMC).
Consumption of DAP increased by 8.49 percent.1999Expert Committee set up to reassess the capacity of the urea manufacturing units reporting high capacity utilisation and to work out financial implications from different dates for implementation of reassessed capacities (nic.in, 2000).
Committee chaired by Dr. G.B. Purohit submitted the report in Nov 1999.2000The report submitted by the Expert Committee did not have a uniform recommendation for the method of reassessment and a definite cut off date for recoveries a separate Committee of Experts was setup to address these issues.
Dr. Y.K. Alagh was the chairperson of the committee.
Growth rate in consumption of DAP was 14.93 percent.
Government revised the maximum retail price (MRP) of phosphatic and potassic fertilizers.
MRP of DAP was raised from Rs 8300 per metric tonne (MT) to Rs 8900 per MT.
MRP of MOP was increased to Rs 4255 per MT from Rs 3700 per MT.
This step was taken to reduce the level of subsidy in the fertilizer sector.
The Government setup a Task Force to study the impact of quantitative restrictions (QRs) on the fertilizer sector and related issues.
The Task Force will suggest strategies to combat the adverse impacts of QRs.
Expenditure reforms commission setup to provide recommendations on the RPS, its impacts and implications and suggestions to improve upon this pricing policy in view of changing economic environment. 2001Urea is the most favoured fertilizer and hence to promote the increased use of these fertilizers, the government provides a subsidy on these fertilizers.
Freight subsidy provided to manufacturing units of fertilizers to cover the cost of transportation of fertilizers from factories to the end consumers.
The Expenditures Reforms Commission made the following recommendations to the government in context of urea
Replacing RPS by group based concession scheme to be implemented in four stages
In the first phase the RPS will be replaced by the Group-based concession scheme. The existing urea units will be categorized into five groups and the rates will be calculated based on the average retention prices in each group.
In the second phase the rates of concession calculated for each group are reduced on the basis of reduction in capital related charges.
In the third phase all the non-gas based plants will be monitored and evaluated for feasibility of expanding production capacity and installing modern plants by converting to LNG (liquefied natural gas). For plants that do not convert will be provided concession based on the limit it is entitled to if it had converted to LNG.
In the fourth phase the industry will be fully decontrolled and will be in a position to compete with imports.
The commission also recommended a 7 percent increase in the price of urea in real terms every year from 2001.
A dual pricing scheme to be introduced for protecting the interests of the small and marginal farmers against increasing price rise.
Expansion of employment guarantee scheme and rural works programme to increase the purchasing power of the poor farmers.
Commissioning the setup of new plants to increase self-sufficiency in urea production. 2002Farmgate price of urea is fixed at Rs 4800 per tonne.
Decision to remove the RPS and replace it with a new pricing policy for urea fertilizers. 2003Individual unit based RPS is replaced by group pricing scheme called the New Pricing Scheme (NPS). The objective of this NPS was to bring transparency, uniformity, efficiency and reduction in production cost (Sharma, 2009). This pricing scheme applied to the urea fertilizers.
The NPS is implemented in two stages covering the next two fiscal years.
Rational pricing implemented for complex fertilizers.
Increased gap between demand and supply of urea led to formulating new policy for setup of new units and capacity expansion of existing units. (India budget, 2003)2004Urea consumption increased by 4.5 percent and a total subsidy of Rs 11,053 crores was provided on account of domestic urea.
The subsidy provided on account of decontrolled potassic and phosphatic fertilizers totalled Rs 5200 crores.
No increases in selling prices of fertilizers since the year 2002.
The department of fertilizers formed a working group under the chairmanship of Dr Y K Alagh to review the effectiveness of the NPS on various fertilizer groups. 2005Increased production and consumption of fertilizers.
Prices of feedstock and raw materials increased.
This resulted in increase in subsidies. 2006Government announces the selling prices for various categories of fertilizers such as urea, phosphatic and potassic fertilizers, DAP, MOP and SSP to promote increased fertilizer use.
Fluctuations in the price of phosphoric acid has resulted in low purchase of this raw material and this has resulted in low production of DAP. The Expert Group recommended that the domestic DAP subsidy should be compared with international prices of DAP.
The production of SSP also suffered owing to low capacity utilization of plants in view of the increasing raw material costs and low margins on account of fixed MRP set by the government for the fertilizers. 2007Inclusion of imported MAP and MAP produced by granulating imported powdered MAP (Chander, 2008).2008Revised concession scheme introduced for SSP fertilizers
Nutrient based pricing scheme introduced for subsidized fertilizers.
Uniform freight subsidy applied on import of raw materials and fertilizers of all kinds.
Promotion of investment in new urea plants and capacity building schemes in collaboration with foreign joint ventures. (Chander, 2008)2009Total fertilizer subsidy has increased to Rs 75,489 crore in 2008-09 from Rs 4389 crore in the year 1991. This represents an increase from 0.85 percent of GDP to 1.52 percent in the last 18 years.
The last three years have accounted for increased subsidies on the fertilizers accounting for nearly 58.7 percent of total subsidies in the year 2008-09. (Sharma, 2009)
YEAROCCURENCE1991Price de-control for nitrogenous fertilizers.
30 percent increase in prices of fertilizers for high-income farmers.
No price increase for small and marginally poor farmers. 1992Decontrolled the import of fertilizers such as di-ammonium phosphate and muriate of potash.
Flat rate concession offered on these fertilizers. These measures led to an increase in the price of fertilisers and fall in consumption.
Retention Price cum Subsidy Scheme (RPS) was now confined to urea to ensure increased use of nitrogenous fertilizers. The price of urea fertilizers was reduced by 10 percent.
Subsidies were introduced on DAP and other complex fertilizers such as NP and NPK.1993Government allowed fertilizer manufacturers to import raw materials for the manufacture of DAP and other complex phosphatic fertilizers at reduced official exchange rate.
No custom duty was charged on these imports.
Subsidies continued on domestic phosphatic fertilizers.
Introduced subsidies on single superphosphate fertilizers.1994Due to de-control of prices of phosphatic and potassic fertilizers, the prices increased and this resulted in temporary shortage. The government to combat this took the following steps exempted the 15 percent duty charges on the import of fertilizers, exempted the custom duty on the import of phosphoric acid for fertilizer production,permission to import raw materials at the official exchange rates. Further subsidies were provided to bring relief to the farmers on account of increasing prices.
All other varieties of fertilizers were also removed from price control.
Some segments of the nitrogenous fertilizers belonging to low analysis group that were de-controlled in 1991 were brought back under control. (Schumacher and Sathaye, 1999)
Urea prices were raised by 20 percent. (Schumacher and Sathaye, 1999)
A total subsidy of Rs 4075 crores on indigenous fertilizers and Rs 1166 crores on imported urea was provided to the farmers. 1995Fluctuations in exchange rates and increase in international prices of urea has an adverse impact on the fertiliser subsidy budget.
To counteract the negative impact of increasing prices of DAP after de-control the subsidy on domestic DAP was increased from Rs 1000 per tonne to Rs 3000 per tonne and for imported DAP by Rs 1500 per tonne.
The existing plants are unable to meet the increasing demand for fertilizers hence there is increased import of potassic fertilizers. 1996Joint Parliamentary Committee (JPC) on fertilizer pricing suggested a ceiling of 110 percent capacity utilisation for payment of Capital Related Charges (CRC).
Committee of Secretaries (COS) recommended the setting up of a high powered committee to review the prevalent practice of subsidization of urea. 1997High Powered Fertilizer Pricing Policy Review Committee (HPC) set up.
C.H. Hanumantha Rao, the former member of planning commission was the chairman of this committee.
Purpose of the Committee was to review the subsidisation of urea and suggest an alternative broad based scientific and transparent methodology (nic.in, 2000).1998HPC submitted a report to the government recommending the discontinuity of the unit wise RPS for urea.
The committee also suggested a uniform Normative Referral Price (NRP) to be fixed for existing gas based urea units and also for DAP.
Other recommendations of the committee included
Feedstock Differential Cost Reimbursement (FDCR) to be provided to urea units that made use of coal, naptha and FOLSHS at the rate of 1750 per tonne and Rs 1300 per tonne.
Ceiling Farmgate Price (FGP) to be applied annually.
Difference between FGP and NRP plus FDCR to be paid as subsidy.
De-regulation of distribution of urea.
Setting up new urea units.
Computation of prices of fertilizers to be done on the basis of nutrient content.
Prices of nutrients other than N to be derived from the price of N in urea.
The NRP is calculated on the basis of Long Run Marginal Cost (LRMC).
Consumption of DAP increased by 8.49 percent.1999Expert Committee set up to reassess the capacity of the urea manufacturing units reporting high capacity utilisation and to work out financial implications from different dates for implementation of reassessed capacities (nic.in, 2000).
Committee chaired by Dr. G.B. Purohit submitted the report in Nov 1999.2000The report submitted by the Expert Committee did not have a uniform recommendation for the method of reassessment and a definite cut off date for recoveries a separate Committee of Experts was setup to address these issues.
Dr. Y.K. Alagh was the chairperson of the committee.
Growth rate in consumption of DAP was 14.93 percent.
Government revised the maximum retail price (MRP) of phosphatic and potassic fertilizers.
MRP of DAP was raised from Rs 8300 per metric tonne (MT) to Rs 8900 per MT.
MRP of MOP was increased to Rs 4255 per MT from Rs 3700 per MT.
This step was taken to reduce the level of subsidy in the fertilizer sector.
The Government setup a Task Force to study the impact of quantitative restrictions (QRs) on the fertilizer sector and related issues.
The Task Force will suggest strategies to combat the adverse impacts of QRs.
Expenditure reforms commission setup to provide recommendations on the RPS, its impacts and implications and suggestions to improve upon this pricing policy in view of changing economic environment. 2001Urea is the most favoured fertilizer and hence to promote the increased use of these fertilizers, the government provides a subsidy on these fertilizers.
Freight subsidy provided to manufacturing units of fertilizers to cover the cost of transportation of fertilizers from factories to the end consumers.
The Expenditures Reforms Commission made the following recommendations to the government in context of urea
Replacing RPS by group based concession scheme to be implemented in four stages
In the first phase the RPS will be replaced by the Group-based concession scheme. The existing urea units will be categorized into five groups and the rates will be calculated based on the average retention prices in each group.
In the second phase the rates of concession calculated for each group are reduced on the basis of reduction in capital related charges.
In the third phase all the non-gas based plants will be monitored and evaluated for feasibility of expanding production capacity and installing modern plants by converting to LNG (liquefied natural gas). For plants that do not convert will be provided concession based on the limit it is entitled to if it had converted to LNG.
In the fourth phase the industry will be fully decontrolled and will be in a position to compete with imports.
The commission also recommended a 7 percent increase in the price of urea in real terms every year from 2001.
A dual pricing scheme to be introduced for protecting the interests of the small and marginal farmers against increasing price rise.
Expansion of employment guarantee scheme and rural works programme to increase the purchasing power of the poor farmers.
Commissioning the setup of new plants to increase self-sufficiency in urea production. 2002Farmgate price of urea is fixed at Rs 4800 per tonne.
Decision to remove the RPS and replace it with a new pricing policy for urea fertilizers. 2003Individual unit based RPS is replaced by group pricing scheme called the New Pricing Scheme (NPS). The objective of this NPS was to bring transparency, uniformity, efficiency and reduction in production cost (Sharma, 2009). This pricing scheme applied to the urea fertilizers.
The NPS is implemented in two stages covering the next two fiscal years.
Rational pricing implemented for complex fertilizers.
Increased gap between demand and supply of urea led to formulating new policy for setup of new units and capacity expansion of existing units. (India budget, 2003)2004Urea consumption increased by 4.5 percent and a total subsidy of Rs 11,053 crores was provided on account of domestic urea.
The subsidy provided on account of decontrolled potassic and phosphatic fertilizers totalled Rs 5200 crores.
No increases in selling prices of fertilizers since the year 2002.
The department of fertilizers formed a working group under the chairmanship of Dr Y K Alagh to review the effectiveness of the NPS on various fertilizer groups. 2005Increased production and consumption of fertilizers.
Prices of feedstock and raw materials increased.
This resulted in increase in subsidies. 2006Government announces the selling prices for various categories of fertilizers such as urea, phosphatic and potassic fertilizers, DAP, MOP and SSP to promote increased fertilizer use.
Fluctuations in the price of phosphoric acid has resulted in low purchase of this raw material and this has resulted in low production of DAP. The Expert Group recommended that the domestic DAP subsidy should be compared with international prices of DAP.
The production of SSP also suffered owing to low capacity utilization of plants in view of the increasing raw material costs and low margins on account of fixed MRP set by the government for the fertilizers. 2007Inclusion of imported MAP and MAP produced by granulating imported powdered MAP (Chander, 2008).2008Revised concession scheme introduced for SSP fertilizers
Nutrient based pricing scheme introduced for subsidized fertilizers.
Uniform freight subsidy applied on import of raw materials and fertilizers of all kinds.
Promotion of investment in new urea plants and capacity building schemes in collaboration with foreign joint ventures. (Chander, 2008)2009Total fertilizer subsidy has increased to Rs 75,489 crore in 2008-09 from Rs 4389 crore in the year 1991. This represents an increase from 0.85 percent of GDP to 1.52 percent in the last 18 years.
The last three years have accounted for increased subsidies on the fertilizers accounting for nearly 58.7 percent of total subsidies in the year 2008-09. (Sharma, 2009)
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