A regulator for fertilisers

Moves are afoot to ring in reforms in the fertiliser sector. A Group of Ministers (GoM) on fertilisers headed by the agriculture minister, Sharad Pawar, has given its in-principle nod to the Department of Fertilisers’ proposal to have an independent regulator for the sector. J. Sreedhara Sarma, Secretary, Ministry of Chemicals and Fertilisers, told Business Today that the “ … idea has been approved by the GoM and efforts are on to set up an independent fertiliser regulator within two to three months.” The ministry now plans to take the proposal to the Cabinet for its approval, after which a bill would have to be passed by Parliament.

The government hopes that a regulator would be able to resolve some of the vexed issues before the industry. The sector is heavily subsidised and the regulator would be required to decide on the pricing of fertilisers. Nitrogenous and complex fertilisers prices are currently pegged well below costs of production, with the balance being the subsidy component. According to estimates, the government currently subsidises around 55 to 60 per cent of the total cost of the fertilisers, running up a subsidy bill of Rs 40,000 crore in 2007-08. The regulator is likely to decide the price based on the cost of production. Other aspects like international prices, raw material costs and freight charges will also be taken into account while arriving at the final price. All this, the government feels, can be done more efficiently by a regulator.

Also, the government is now contemplating shifting to a nutrient-based pricing regime, which again, it feels, makes it imperative to have an independent regulatory body in place. As part of the process, about 80 products under the Fertiliser Control Order would soon be brought under subsidies (at present there are only 15 products that get subsidies). Says Sarma: “The whole idea is to encourage farmers to use fertilisers according to the soil requirements.” This policy initiative, officials feel, requires an independent body to take care of the finer details.

The government is also planning to encourage the fertiliser industry to produce more products in India. For this, it’s contemplating moving to a pricing regime based on import parity. Says Sarma: “We are trying to increase fertilisers production in India. For future production we are proposing 95 per cent import parity pricing.” Clearly, the government has set out an ambitious agenda to transform the fertilisers industry—whether it will be able to deliver the goods remains to be seen.

— Rishi Joshi