Subsidy cuts could spark price rise: FACT

KOCHI: Following the Cabinet Committee on Economic Affairs approving the Fertilizer Ministry's proposal to reduce subsidies on phosphatic and potassic fertilisers on Thursday, it is likely that fertilizer companies will pass on the burden to their customers.
Responding to the move, a senior Fertilizers And Chemicals Travancore Ltd (FACT) official told The Times of India that fertlizer companies have been given the freedom to effect retail price increases in the light of such events.
"Right now, retail prices of 22 varieties of potassic and phospatic fertilizers are freed by the government. Fertilizer companies, therefore, might opt to pass on these subsidy reductions to their customers," he said.
The Fertilizer Ministry had cited the strengthening rupee and falling global prices as reasons for recommending subsidy reductions on nitrogen and potassium, key ingredients in fertilizers, which will be Rs 24 per kg each and Rs 21.8 per kg on phosphate for the 2012-13 fiscal. For the 2011-12 fiscal, subsidies on nitrogen, phosphatic and potassic fertilizer were fixed at Rs 27.15 per kg, Rs 32.33 per kg and Rs 26.76 per kg, respectively under the Nutrient-Based Subsidy (NBS) policy.
The subsidy cuts will be effective from April 1 this year. The reduction in phosphatic and potassic fertilizer subsidies is expected to prune the government's total subsidy bill by 20% in fiscal 2012-13.
India's vast subsidies have been severely criticized by the World Bank as increasing economic inefficiency.
"There has been a proposal to decontrol urea prices as well. However, it is the largest selling fertilizer in India and such a move would pose obstacles," the official said.
Urea, which sells at Rs 5,500 a tonne incurs a production cost of Rs 20,000 per tonne. Every tonne of urea produced by Indian fertilizer companies is subsidised to the tune of Rs 14,500.
"Urea is the only fertilizer with prices totally under the control of the government. But in the case of other categories, price increases are the only way to counter reductions in subsidy," the official added. Prices increases are not new to Aluva-based FACT. 'Factomphos', the company's blockbuster product, which has a huge market in Andhra Pradesh, Tamil Nadu and Kerala, has seen price increases in the 60-70% range in the last 6-7 months. Prices are now in the vicinity of Rs 13,000 a tonne.