Urea price may be increased by 10% but decontrol unlikely anytime soon

The Union cabinet will consider a proposal to hike urea price by 10% early next month even as the fertiliser industry feels a minimum 40% increase is needed to check overuse of the highly subsidised fertiliser. The move follows finance minister P Chidambaram's recent letter to chemicals & fertilisers minister MK Alagiri asking for an increase in urea price. The government, however, has apparently put the plan to decontrol the price of this fertiliser in abeyance.

Subsidised urea has led to farmers excessively using this complex, resulting in an imbalanced fertiliser mix, with low usage of non-urea fertilisers — P (phosphate) & K (potash) — that were decontrolled in April 2010. Wide disparity between prices of urea and non-urea fertilisers — largely a result of the lopsided subsidy regime — has adversely affected the fertiliser use mix in the country.

Prices of di-ammonium phosphate (DAP) have gone up by 150% while those of muriate of potash (MoP) have risen by 280% since the introduction of the nutrient-based subsidy (NBS) regime, which saw decontrol of prices of the two. But urea prices have remained constant as the government stepped up subsidy on this fertiliser. As a result, the gauge of balanced fertilisation — the NPK ratio — has skewed towards excessive use of nitrogen (N) and disproportionately lower use of other nutrients P and K. NPK use ratio widened from 4.7:2.3:1 in 2010-11 to 6.5:2.9:1 in 2011-12, due to steep fall in P & K consumption.

"Increase in the price of urea, which would not only reduce the total subsidy requirements, but would also correct the skew between prices of P & K fertilisers and urea, which is resulting in an over-use of urea," Chidambaram said in his letter to Alagiri last week. Chidambaram also asked the chemicals & fertiliser ministry to prepare a concept note on direct cash transfer of fertiliser subsidy to the cultivators. Sources in the fertiliser ministry said the Cabinet will take a fresh call on increasing urea prices, and the hike would be 10%.

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