Tuesday, August 21, 2007

On fertilizer subsidy policy

You can’t get a better dekko at well informed opinion on this subject than today’s debate in Perspectives column of the ET.

Take a look at “How can India reform its fertilizer policy?

After reading it, you may find that the following excerpts will perhaps work as reminder points to you when you want to review/reformulate your opinion on the matter:

Some facts about the subsidy amount

  • The subsidy bill for 2006-07 which was budgeted to be Rs. 17,253 cores has actually turned out to be Rs. 22,452 crores. Business sources say, it might actually be Rs. 30,000 crores.
  • For 2007-08, this is expected to touch an amount of Rs. 50,000 crores.

Research has shown:

  • That almost half of the fertilizer subsidy goes to the fertilizer industry rather than to farmers.
  • The marginal returns of government spending, are lower than for other sectors like agriculture R&D, rural roads, rural education or irrigation. What this means is that for every additional rupee spent on fertilizer subsidy, the returns are very low – at only 0.53. Such returns from other sectors are: agriculture R&D (6.9), rural roads (3.2), rural education (1.5) and irrigation (1.4).

One argument about the nomenclature

  • It is a misnomer to call it a subsidy. The difference between the sale price and the production costs is being funded to the fertilizer industry. It is wrong to term it a subsidy.

If we want to continue with the existing system of subsidy, to retain it at present level, the MRP (Maximum Retail Price) needs to be raised by 42%.

Today, farmers are applying only those fertilisers that are being subsidised by the government; the industry is producing only such fertilisers as are covered under the “subsidy” without giving a serious thought that our soil needs micro nutrients and secondary nutrients along with nitrogen, phosphate and potash to achieve better results.

1 Comment:

Brahma said...

It is not the govt fault that industry produces what sells. A businessman's job is not to cover up for the follishness of the state. The industry will respond to the incentives provided to them. They need to pay salaries and repay loans. They cannot afford to be altruistic. The fertilizer policy is a such a disaster and now payback time is coming for the Indian govt.