decontrolled Phosphatic and Potassic fertilizers are sold at indicative maximum retail prices. Both the uniform sale price and the indicative maximum retail prices are less than the cost of production, for which the fertilizer companies are compensated by the government.
While officials are not willing to reveal how much partially decontrolling urea will save the exchequer, it should be worth remembering that out of the total budgeted subsidy provision of Rs 67,790 crore for fertilizers, about Rs 43,300 is for urea.
As reported in FE earlier, finance and oil ministry officials are pitching for a complete elimination in diesel under-recoveries, which stood at Rs 4.41/litre on May 16. If the current practice of increasing diesel prices by about 50 paise per month continue, and if there are no major shocks in global crude prices, diesel subsidies, which amounted to Rs 62,837 crore last fiscal, can be completely eliminated within 6-8 months.
The UPA government had raised the cap on subsidized LPG cylinders refills from 9 to 12 on pressure put by the Congress vice-president Rahul Gandhi. That meant more than 90% of all cylinder refills had to be subsidized. This measure is likely to be rolled back as well.
Policy watchers, however, are cautious. “In theory, this sounds great. Any move that can cut some portion of the subsidies and increase capital spending should be welcomed. But we will have to wait till the end of the fiscal to see if it has actually worked, since actual subsidy payments always exceed budgeted targets,” said Madan Sabnavis, chief economist with Care ratings. “But in case they are able to do such a thing, it will be the best possible situation.”