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Aarati Krishnan

THE subsidy bill for decontrolled fertilisers may not have attracted the same degree of attention as that for urea. But it has bloated, all the same. Between 1995-96 and 2002-03, the Government's outlay on concessions to decontrolled fertilisers has swelled from Rs 500 crore to Rs 4,224 crore. However, unlike urea, the concession scheme for decontrolled fertilisers cannot be blamed for perpetuating a high-cost structure within the industry.

Manufacturers of phosphatic fertilisers (irrespective of location or feedstock) are entitled only to a flat rate of subsidy (or concession), fixed by the Government from time to time. This too is necessary only because the manufacturers are required to sell complex fertilisers at government-mandated selling prices, which are substantially lower than the production costs. In fact, if the subsidy bill has bloated over the years, it is mainly because the costs of key inputs have shot past the selling prices (which the Government has been reluctant to raise). The effective realisations to the manufacturers have, in fact, changed very little over the past five years.

If the current system has offered some protection to the domestic industry, it has been through differential rates of concession to imported and indigenous fertiliser products. Domestic manufacturers have consistently been given higher rates of concession than importers . This differential has widened in recent times, and was at Rs 2,000 per tonne in February 2002. A revamp of the present system of subsidies to phosphatic fertiliser manufacturers could revolve around two aspects. One, there could be a further streamlining of the procedure for disbursement of subsidies. This could work in favour of domestic manufacturers, by reducing delays in disbursement. And, if the eventual objective is to phase out subsidies, the Government may look to bring the selling prices closer to import parity prices. Domestic manufacturers may, thus, have to brace up to compete with imports at the landed cost. In the meantime, the Government could also look at mopping up any excess profits created by the flat concession system.

The Tariff Commission is said to be examining a proposal to classify complex fertiliser manufacturers into two — those using imported intermediates and those that have integrated backwards — for fixing differential concession rates.

Industry watchers feel that the former could be granted a higher rate of concession than the latter for an interim period.

Ironically though, if this is done, low-cost producers of complex fertilisers could in fact face profitability pressures in the near term.

However, such a policy dispensation, even if it results in some savings in the subsidy bill over the next couple of years, would only be counter-productive over the long term.

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