Context: Recently, Minister of Chemical and Fertilizer is discussing on the concept note of “One Nation One Fertilizer” prepared by department of fertilisers, wherein all fertilizer manufacturers will be required to sell their products under a single ‘Bharat’ brand, appears not well thought.
- Objective of ‘ONE NATION ONE FERTILIZER’ concept is to minimize freight subsidy and monitor ‘Real time’ movement/availability/sales of Fertilizers in a state and to stop the diversion of Urea for industrial purpose.
Key Features of this concept
- Introduction of PRADHAN MANTRI BHARTIYA JAN-UREA PARIJONA and all urea to be sold under Brand Name of “BHARAT UREA”
- Single Fertilizer design bag across the country for all the brand. Department of Fertilizers (DOF) will design and finalize the bag.
- All the urea bags will have bar-code which will be read through bar code reading machine, which will be linked with POS machines.
- Fertilizer company will be eligible for subsidy only when the Fertilizers bag is sold through bar code reading machines via PoS Machine under DBT.
Reason behind such a proposal
- Under the Nutrient Based Subsidy (NBS) scheme, a fixed amount of subsidy decided on an annual basis is provided on each grade of subsidized Phosphatic and Potassic (P&K) fertilizers, except for Urea, based on the nutrient content present in them.
- Current subsidy pattern- The selling price of urea is statutorily capped at 10-20% 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% 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 transport their products to the end-user.
- Subsidy cut- The rationale behind the proposal of requiring all urea manufacturers to sell their products under a single brand of Bharat Urea is to cut the subsidy bill that’s now close to Rs. 1.5 lakh crore.
No need for freight subsidy- The new policy argues that as urea is a commodity with negligible differentiation between players, there’s no real need for producers to transport their fertilizers cross-country.
- This will save on freight subsidies of about Rs. 3,000 crore a year.
Easy monitoring- The proposal will aid in monitoring the Real time movement/availability/sales of fertilizers in a state.
- Prevent diversion- One of the objectives of “One Nation One Fertilizer” is to stop the diversion of urea for industrial purpose.
Key criticism of this proposal
- The government’s proposal neglected the deleterious impact of completely commoditising a manufactured product on players’ motivation to remain in business.
- With selling prices capped and every aspect of operations from product pricing to cost structure to geographical distribution and sales micromanaged by the government, urea manufacturing is already a highly unattractive business to be in.
- The policy may actively discourage private players from committing to new projects in the coming years.
- With almost every aspect of fertilizer manufacturing controlled by the government, the sector already has very few private players.
- Many private players such as the Tatas, and Indo Gulf Fertilizers have exited the business in recent years.
Road Ahead
- The Centre can deliver the subsidy directly to farmers, decontrol urea, and leave the pricing to market forces.
- The Centre must look to transition urea to a Direct Benefit Transfers (DBT) regime that reimburses small farmers for their actual fertilizer use.