Govt may cut subsidy to P&K fertilisers if MRP unreasonable

The Centre, which is probing the cost data of fertiliser companies, on Tuesday said it may restrict or stop subsidy to those firms which have fixed maximum retail price (MRP) of the soil nutrients unreasonably high.

The government has been implementing Nutrient Based Subsidy (NBS) policy for decontrolled phosphate and potash (P&K) fertilisers since April 2010. Under this policy, MRP is fixed by the fertiliser companies as per market dynamics.

With fall in international prices of P&K fertilisers, companies in June had reduced the MRP of potash, DAP and NPK by Rs 5,000 per tonne, Rs 2,500 and Rs 1,000, respectively.

“To curb the price rise of P&K fertilisers, the government is scrutinising the cost data submitted by the fertiliser companies from 2012-13 to verify the reasonableness of MRPs of the fertilisers fixed by these fertilisers companies,” Minister of State for Fertilisers Mansukh L Mandaviya said in a written reply to the Lok Sabha.

The government has engaged cost accountants/firms for the scrutiny of the cost data and to submit reports on the reasonableness of the MRPs fixed by the companies, he said.

“In cases, where after scrutiny, unreasonableness of MRP is established or where there is no correlation between the cost of production or acquisition and the MRP printed on the bags, the subsidy may be restricted or denied even if the product is otherwise eligible for subsidy under NBS,” he said.

In proven case of abuse of subsidy mechanism, the fertilisers ministry on recommendation of Inter-Ministerial Committee, may exclude any grade/grades of fertilisers of a particular company or the fertiliser company itself from the NBS scheme, he said.

Since P&K fertilisers are under open government license, Mandaviya said the production and sale of these fertilisers are basically the commercial decisions of the companies. The government doesn’t interfere in decisions of the companies. 

Fertiliser subsidy arrears are likely to be around Rs 40,000 crore at the end of current fiscal due to lower allocation in the Budget, industry body FAI has said while seeking early disbursal of pending dues of manufacturers.

Fertiliser manufacturers have to incur an additional interest cost of Rs 4,000 crore per annum due to delay in subsidy payment by the government, Fertiliser Association of India has said. “Subsidy arrears are estimated to fall slightly this year to around Rs 40,000 crore. 

At the end of last fiscal, the arrear was Rs 43,000 crore,” FAI Director General Satish Chander said.The fall in subsidy arrears is due to decline in urea subsidy because of fall in global prices, he said, adding that the subsidy on phosphatic and potassic fertilisers has also dropped by about Rs 4,000 per tonne.

The government sets the maximum retail price of urea. The difference between the cost of production and the retail price is reimbursed to manufacturers as subsidy.