India has eased controls on several fertilizers and raised prices of the popular urea nutrient by 10 per cent, raising hopes of more reforms, lower subsidies and higher margins for producers.
The government, facing protests against soaring food prices, has cautioned fertilizer firms that if prices rise sharply, it will reimpose controls to protect farmers as soil nutrients account for 30 per cent of farming costs.
“The government has reserved the right to intervene, to protect the interests of farmers,” Information and Broadcasting Minister Ambika Soni told reporters after the cabinet approved the policy, which will fix the subsidy for specific nutrients, replacing an ad hoc system.
Easing controls on the price of fertilizers other than urea will help the government cut fiscal deficit, which rose to 6.2 per cent of GDP last year, partly because of fertilizer subsidy, which rose to 758.49 billion rupees ($16.4 billion) in 2008-09.
Fertilizer Secretary S. M. Krishnan said the subsidy in 2010-11 would not be higher than the previous year.
Finance Minister Pranab Mukherjee, who will present the annual budget on Feb. 26, is expected to lay down a road map for rationalizing oil and fertilizer subsidies.
Cabinet approval of the new policy augurs well for the oil and gas sector, where prices of petrol, diesel, kerosene and liquefied petroleum gas (LPG) are set by the state, analysts say.
The government is already considering recommendations of a panel headed by Kirit Parekh, a top official, which has suggested easing controls on fuel prices.
“The decision (on fertilizers) might indicate some of the steps in the Kirit Parikh committee report will be implemented soon. I specifically expect action on LPG prices is likely in the next few weeks,” said Abheek Barua, chief economist at HDFC Bank.
N. R. Bhanumurty, an economist at the National Institute of Public Finance and Policy, said the decision, which will help improve the fiscal situation, would be a “shock” for farmers.
“In the short term, it may have some adverse impact, but indicates government’s seriousness to rationalize the subsidies,” he said.
SKEWED FERTILIZER USE
Fertilizer use in India is heavily skewed toward urea, a nitrogenous nutrient, reducing farm yields, which are about half of levels in China and Europe, making India a big buyer of sugar, edible oils and in some years wheat and rice.
Analysts say the new policy will help raise yields but no estimates on the extent of the rise were available.
Leaders of farmers’ bodies say the new policy will help farms, but want direct payment of subsidies, which is now given to companies that sell the nutrients at a state-set price.
“It appears the new policy will help balance fertilizer use but the impact has to be seen,” said Krishan Bir Chaudhary, president of the Bharatiya Krishak Samaj, a farmers’ body.
“Fertilizers have not been used in right proportion, creating havoc with soil texture. Ideally, farmers should be directly subsidized for fertilizer,” he said.
T. K. Bhaumik, an economist, said that possible increase in fertilizer prices would be a concern for farmers.
The majority of Indian farmers own small fragments of land, making fertilizer costs a sensitive issue.
“Fertilizer accounts for 30 per cent of cost of production for farmers. So you can understand the impact,” Bhaumik said.
A farm leader said the move may lead to protests.
“We have to see how the subsidy is being given. If it is not given directly, then we will protest,” said P. Chengal Reddy, secretary general of Consortium of Indian Farmers Associations.
EU Farm Policy Postering Begins
European farm policy should focus on ensuring viable prices for farmers threatened by volatile markets and falling incomes, French Agriculture Minister Bruno Le Maire said in an interview with Reuters Feb. 17.
The European Union’s largest farm economy was determined to have strong regulations to support its farmers, but would be open minded in upcoming talks on EU farm policy, especially in view of Germany’s new coalition government, Le Maire said.
The EU’s 27 members will start discussing this year the future form of the bloc’s Common Agricultural Policy (CAP), which claims some 40 per cent of the total EU budget.
The talks are expected to pitch countries like France, who favour regulatory measures backed up by a large budget, against other members like Britain and the Netherlands who have traditionally sought a slimmed-down budget with a phasing out of so-called single farm payments.
France’s negotiating task in EU farm policy could be made tougher by a more free-market tone in the new government in Germany, its indispensable ally in EU talks, plus the likely election of an EU-skeptical Conservative government in Britain.