In its pre-Budget recommendation to the finance ministry, the fertiliser ministry has said the maximum retail price of urea could be raised by 7% annually over next five to seven years before its complete decontrol. This could help the government save close to Rs 1,200 crore on its subsidy bill for 2014-15.
However, with the sector being politically sensitive, the ministry has given other alternatives where urea price would increase by 10% this year and further changes could be considered later. This hike would translate into a saving of Rs 1,600 crore towards fertiliser subsidy.
“Fertiliser sector reforms is top on the agenda of the ministry. It has provided various scenarios to the finance ministry so that some forward steps taken towards reducing the subsidy bill,” said a fertiliser ministry official.
FE has reported that gradual increases in prices of domestic LPG, kerosene and urea are under the consideration of the government, which wants to reduce the subsidy bill. The gradual increases in price of diesel has been very effective in bringing down the under-recovery of the oil marketing companies on sale of the fuel and the government's subsidy outgo.
The FY15 budgeted fertiliser subsidy at Rs 67,970 crore out of which Rs 43,300 is for urea.
Urea is the only fertiliser that is still under control and sold at a government-notified price. The last major revision was on April 1, 2010, when the price was increased to Rs 5,310 per tonne from Rs 4,830 per tonne. In October 2012, price was marginally hiked by Rs 50 to Rs 5,360 a tonne.
India meets its entire requirement of muriate of potash (MOP), 90% of di-ammonium phosphate (DAP) and 20% of urea through imports. India currently produces around 22 million tonnes (mt) of urea annually against a demand of 30 MT. The gap of around 8 MT is met through imports.
"Even if urea prices are increased to the extent of 10%, the impact on the subsidy bill will not be significant in absolute terms," K Ravichandran, analyst at ICRA said.