The Government’s decision to bring back price controls in all fertilisers is an inevitable consequence of the flaws inherent in the nutrient based subsidy (NBS) regime operational since April 2010. To start with, it has excluded urea that accounts for roughly half of the country’s total fertiliser product consumption. Thus, its maximum retail price (MRP) continued to be fixed by the Government, even while that of all other fertilisers were decontrolled. The result of it has been that within three years of the new system being implemented, the MRPs of decontrolled phosphatic, potassic and various complex fertilisers soared 3-4 times, whereas the administered price of urea went up by just 11 per cent over this period.

But no less flawed has been the subsidy disbursal mechanism. While there was nothing wrong with the idea of NBS – which linked subsidy on any product to its specific nutrient content – the problem really lay in the payment being made to the fertiliser companies. In the earlier system, the Government fixed the prices that companies could charge to farmers; since these were well below their production/import costs, they could hence legitimately demand being paid the subsidy as compensation. But in the new NBS regime, companies were allowed to fix MRPs based on their own assessment of market conditions and claim subsidy over and above that. Although there is no evidence of ‘profiteering’ on their part, the very fact that companies could charge any MRP and receive subsidy without being obliged to pass on its benefits to farmers made the system seem unfair, at least in theory. And now, the Government, apparently convinced that this is so in practice, has gone back to fixing what it believes are ‘reasonable’ MRPs for all fertilisers under the NBS. Moreover, any company selling above these rates determined by it shall be deemed as “indulging in undue profiteering”.

The Government can, of course, point out that fertiliser subsidy payments involve use of public money for the specific purpose of benefiting farmers. Since this money is being channelled through companies, it is, therefore, justified in ensuring that the latter are passing on the benefits of these payments to farmers. But if that is so, shouldn’t it be disbursing the subsidy directly to farmers? If LPG consumers can get subsidy credited to their Aadhaar-enabled bank accounts while booking cylinders, what stops the Government from rolling out a similar scheme in fertilisers, including urea? Only when this happens can there be a genuine NBS, where the farmer makes informed choices of what fertilisers to buy and companies, too, are forced to respond through new products customised to his specific cropping or soil management requirements. This sort of productive engagement works best in an environment of decontrol and competition, where farmers value fertilisers for their intrinsic nutrient quality and subsidies are only incidental to making purchase decisions.

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