Relevance: GS-3: Major crops-cropping patterns in various parts of the country, different types of irrigation and irrigation systems storage, transport and marketing of agricultural produce and issues and related constraints, Issues related to direct and indirect farm subsidies.
Key Phrases: ‘One Nation One Fertiliser’, Bharat Urea, New Investment Policy, Return on Equity, criss-cross movement,NPK.
Why in News?
- The Centre’s move to usher in a ‘One Nation One Fertiliser’ regime, wherein all fertiliser manufacturers will be required to sell their products under a single ‘Bharat’ brand, appears not well thought through just as it will also be tough to implement.
Context
- The Centre’s proposal to require urea manufacturers to do away with branding appears not a well thought.
Do You know?
- Nitrogen, phosphorus and potassium, or NPK, are the “Big 3” primary nutrients in commercial fertilizers. Each of these fundamental nutrients plays a key role in plant nutrition.
- China is by far the country with the largest production of fertilizer in the world, with an output of 28.9 million metric tons of nutrient. It is followed by the United States and India, with 13.6 and 13.3 million metric tons produced, respectively.
- The appropriate NPK ratio under Indian soil conditions is stated to be 4:2:1.
- Gujrat is the largest producer of fertilizer in India. More than 14% of the total fertilizer factories are located here.
Key Features
- The concept note proposing to require all urea manufacturers to sell their products under a single brand of Bharat Urea, seems to be motivated by the good intention of pruning the subsidy bill that’s now close to ₹1.5 lakh crore.
- The selling price of urea is statutorily capped at 10-20 per cent of production costs. Under the New Investment Policy 2012, urea units can be set up with the government providing subsidy support to manufacturers based on production costs plus a 12 per cent assured return on equity. This is meant to enable producers to sell urea at artificially low prices.
- An additional freight element was added to this subsidy to help manufacturers ferry their products to the end-user.
- The new policy now argues that as urea is essentially a commodity with negligible differentiation between players, there’s no real need for producers to transport their fertilisers cross-country.
- The need for one brand was felt as the government observed that since companies get the freight subsidy from government, they don’t hesitate for criss-cross movement of fertilisers for longer distance.
- Also brand-wise demand of fertilisers in the specific areas by the farmers is one of the reasons of criss-cross movement. For instance companies of Rajasthan were selling in Uttar Pradesh and Uttar Pradesh-based plants were selling in Rajasthan.
- It reckons that if manufacturers stop selling urea under individual brands, there would be no need for an IFFCO to move its urea from UP to Rajasthan or for a Chambal Fertilisers to sell in UP, thus saving on freight subsidies of about ₹3,000 crore a year.
New Investment Policy -2012
- New Investment Policy : 2012 notified on 2nd January, 2013
with the main objective to facilitate fresh investment, make India
self-reliant and reduce import dependency in urea sector. The salient
features of NIP – 2012 are as follows:-
- The policy supports gas based plants.
- The floor price has been determined at a Return on Equity (RoE) of 12% and the ceiling price at a RoE of 20%.
- It supports revival of closed units.
- It encourages investment by Indian industry in Joint Venture abroad in resource rich countries.
- For units in North Eastern states, the special dispensation regarding gas price that is being extended by GOI/State governments will be available to any new investment. Suitable adjustments will be made to applicable floor and ceiling price in case the delivered price (after allowing for special dispensation) falls below USD 6.5 per mmbtu, subject to approval of Ministry of Finance.
- ‘Only those units whose production starts within five years from the date of this amendment notification will be covered under the policy. Subsidy will be given only upon domestic sale as at present for a period of 8 years from the date of start of production. Thereafter, the units will be governed by the urea policy prevalent at that time.’
Key Issues
- Impediment in Atmanirbharta in fertilisers
- The policy, if enforced, could prove a serious impediment to India’s bid for Atmanirbharta in fertilisers, as it may actively discourage private players from committing to new projects in the coming years.
- Only Few Private Players Surviving
- With almost every aspect of fertiliser manufacturing controlled by the government, the sector already has very few private players who have survived the vicissitudes of whimsical policy-making.
- Many private players such as the Tatas, and Indo Gulf Fertilisers have exited the business in recent years. Shutting the door on even basic value-addition by way of branding, may well be the last straw on the camel’s back.
Solution
- For the Centre to reap material savings in its subsidy bill, a far simpler solution exists. It can deliver the subsidy directly to farmers, decontrol urea, and leave the pricing to market forces.
- With Direct Benefit Transfers now established as a workable way to deliver leakage-proof subsidies to targeted beneficiaries, the Centre must look to transition urea to a DBT regime that reimburses small farmers for their actual fertiliser use.
Conclusion
- The Centre’s plan to sell urea, in which the government bears about 90 per cent subsidy, under one brand across the country ,may take longer as several issues have come up.
- Such a step has to be legally examined as under what provision the government can direct company to use one brand name.
- Government should talk to all parties taking into consideration of their demands and issues and take decision accordingly.
Source: The Hindu BL
Mains Question:
Q. Discuss how the Centre’s move to usher in a ‘One Nation One Fertiliser’ regime is going to affect Fertiliser industry in India?(Word 250).
