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The Centre’s decision to usher in a “One Nation, One Fertilizer” scheme, in which all fertilizer manufacturers will be required to sell their products under a single “Bharat” brand, does not seem well thought out, just as it will also be difficult to implement. The policy, if enforced, could prove a serious impediment to India’s bid for Atmanirbharta in fertilizers, as it could actively discourage private players from engaging in new projects in the coming years. . With nearly every aspect of fertilizer manufacturing controlled by the government, the sector already has very few private players who have survived the vicissitudes of fanciful politics.
The concept note proposing to compel all urea manufacturers to sell their products under a single brand of Bharat Urea, appears to be driven by the good intention of reducing the subsidy bill which is now close to ₹1.5 lakh crore. The selling price of urea is legally capped at 10-20 percent of production costs. Under the new 2012 investment policy, urea units can be set up, with the government providing subsidies to manufacturers based on production costs plus a guaranteed 12% return on equity. The aim is to allow producers to sell urea at artificially low prices. An additional freight component has been added to this subsidy to help manufacturers get their products to the end user. The new policy now argues that since urea is essentially a commodity with negligible differentiation between players, producers do not really need to transport their fertilizers across the country. He believes 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 Fertilizers to sell in UP, thus saving on the subsidies of transportation of about ₹3,000 crore per year. . The rating, however, does not take into account the deleterious impact that the complete commoditization of a manufactured product could have on players’ motivation to stay in business. With capped sales prices and all aspects of operations – from product pricing and cost structure to geographic distribution and sales – micromanaged by the government, urea manufacturing is already a very unattractive business. for any for-profit actor. Many private players such as Tatas and Indo Gulf Fertilizers have left the business in recent years. Closing the door on even basic added value through branding might just be the last straw on the camel’s back.
For the Center to make material savings on its subsidy bill, a much simpler solution exists. It can give the subsidy directly to farmers, remove control of urea and leave pricing to market forces. With direct benefit transfers now established as a practical means of providing leak-proof subsidies to targeted beneficiaries, the Center should consider moving urea to a DBT scheme that reimburses smallholder farmers for their actual use of ‘fertilizer.
Published on
March 16, 2022
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