Sadly, the Urea policy would not benefit anybody
Finally the Abhijit Sen Committee report suggesting new Urea policy was approved with an anticipation to reduce India’s urea import bill, which already crossed Rs.275 billion during 2007-08. The new policy proposes compensation to producers at import price parity of urea, instead of cost-plus-basis method prevalent today.
Urea is the most used ingredient in fertilisers in India yet to meet the demand 9 million tonnes is imported. There is no doubt that the new policy would make it more profitable for the companies to invest in urea production since they would be given higher subsidy. But the question is whether the new policy would be able to bring the much needed investment and would the benefits be passed on to the poor farmers.
Firstly, the new pricing would be applicable only to additional urea produced (over the existing rated capacity). But as Satish Chander, Director General, Fertiliser Association of India says, “The entire thing depends on gas availability and price. If it is available to fertiliser manufacturers at $5 per mmbtu the urea production will go up.” Availability of key ingredients like gas and LPG have always been a problem for producers and there has been no attempt by the government in this regard. Companies who can start greenfield investments would get as much as 85% of the subsidy while those who utilise under-used capacities will get 90%. In both the cases most of the players fail to meet the requirements. Most of the companies in India don’t have the needed cash-flows to either start new projects or increase production in the existing plants. Secondly, poor farmers who should get the final benefit of subsidies don’t get it. An IFPRI research has shown that half of the fertiliser subsidies actually go to companies rather than to farmers. In this case too, neither the farmers would feel any actual difference from the existing state nor the agriculture.
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
Finally the Abhijit Sen Committee report suggesting new Urea policy was approved with an anticipation to reduce India’s urea import bill, which already crossed Rs.275 billion during 2007-08. The new policy proposes compensation to producers at import price parity of urea, instead of cost-plus-basis method prevalent today.
Urea is the most used ingredient in fertilisers in India yet to meet the demand 9 million tonnes is imported. There is no doubt that the new policy would make it more profitable for the companies to invest in urea production since they would be given higher subsidy. But the question is whether the new policy would be able to bring the much needed investment and would the benefits be passed on to the poor farmers.
Firstly, the new pricing would be applicable only to additional urea produced (over the existing rated capacity). But as Satish Chander, Director General, Fertiliser Association of India says, “The entire thing depends on gas availability and price. If it is available to fertiliser manufacturers at $5 per mmbtu the urea production will go up.” Availability of key ingredients like gas and LPG have always been a problem for producers and there has been no attempt by the government in this regard. Companies who can start greenfield investments would get as much as 85% of the subsidy while those who utilise under-used capacities will get 90%. In both the cases most of the players fail to meet the requirements. Most of the companies in India don’t have the needed cash-flows to either start new projects or increase production in the existing plants. Secondly, poor farmers who should get the final benefit of subsidies don’t get it. An IFPRI research has shown that half of the fertiliser subsidies actually go to companies rather than to farmers. In this case too, neither the farmers would feel any actual difference from the existing state nor the agriculture.
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
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