Q: Layout the problem for us the manner in which the subsidies are given like Mr Sharma was telling us the impression is that the companies are getting the subsidy but in reality what are the companies getting at all? Tell us what the problems are at the companies end?

Chander: Let me explain that we have reached a stage as far as the subsidy on fertilizer is concerned, where these subsidies are harming the farmers, they are harming the Indian soil. They are not attracting the present policies nor attracting any investment. The fertilizer used efficiency has gone down. The response ratio has gone down and this is not the way to manage the fiscal budget etc where it is not known how much the requirement would be. Last year, the budget estimate started with Rs 31,000 crore, we ended up with Rs 1 lakh crore so it is not good for fiscal management either.

Q: The fiscal part is taken. I want to know why is it that for the last 10 years fertilizer companies have not even resorted to capital expansion?

Chander: Absolutely, there has been no investment. I am coming to the industry perspective. First I have given you the farmer perspective, the soil perspective and the government perspective. As far as the fertilizer industry is concerned, there has been no investment during the last 10 years and the way the subsidies are routed last year the total delivery cost of the production are of the imports. The industry could realize only 18-20% from the farmers and for 80% it has to be depended upon the government. Now the government system has is known there. There is a system of budget estimates, the money is not there in the budget unless it is not put in the budget and approved by the parliament, the money cannot be given. So there are huge delays. Then ultimately the bond were given but even in the first stage as to what is the delivered cost there are many issues with the industry. They are absolutely taking everything into consideration. Let me make use of this forum and tell you that as far as P&K fertilizer is concerned that is a DAP complexes, etc that is phosphatic and potassic fertilizer the industry, the  association on behalf of industry has already written to the government on June 24, that we would like to come out of this scheme. We would like to come out of the scheme  and would like to produce and sell the fertilizer at market prices.

Q: Do you think that when there are already battling with administered prices of fuels was it a mistake on the part of the government to have imposed an administrative price even on gas – does that not become messier should not have that gas have been priced in a way related to the market price either crude or gas?

Jha: If you are going to remove subsidies in a particular sector, lets say in this case petroleum sector, that is petrol, diesel or LPG then you cannot have subsidy on one part of petroleum product ie gas. If you are going to subsidies then it makes sense that you subsidies that and then there is no argument as to how much subsidy should be given and for how long. But if the idea is to phase out subsidies or to target it better the it does not make very good economic sense to subsidies one element of petroleum product  and not subsidies the rest.

Q: Do you think that by giving this 4.2 dollar the government is making a big mistake. In any case will that gas price atleast relieve the fertilizer industry or some of its problems?

Chander: Well it has to be seen in context of the fertilizer policy. As of today whatever is the cost of input is recognized by the government. So, whether it is 4.2 or 2.2 or 5.2 the government will recognize it. So as long as we are in the present policy and in the controlled environment it does not impact us. By using at 4.2 and substituting with high cost fuel with naphtha and fuel oil the savings will go to the advantage of the government

And the industry will not gain anything. If the industry is totally de-controlled then what should be the price will become an issue. But as of now in context with the present policy it is not an issue for the industry and whatever savings will result in the saving in 4.2 because we are consuming about 42 million cubic meters per day and we were short by about 15 which the government is given. This 15 has been substituted with the high cost so there will be savings. The savings will be in the subsidy bill of the government but there is no advantage as far as the fertilizer companies are concerned.

Q: When the government says that the subsidy should be given only to the farmer atleast that is what the economic survey says, do you think that is the way forward? As Mr Chander says make it market price, do not disturb or interfere with the fertilizer companies at all – just identify the poor farmer and supply fertilizer stamps at that end?

Sharma: There are two basic points I want to make. One is that there is nothing like a gas market.  Gas markets are fragmented internationally and domestically. It is a monopoly given to a few people. This 4.2 dollar per million btu is very high compared to the cost of production and especially a monopolist gas supplier, when there is no market I think there is necessity of administrative pricing. Unfortunately the gas regulator does not have the authority.

The second point which is extremely basic is that the NGOs of fertilizer in India it is actually more than what is optimal because electricity is subsidized so the pump sets, they pump a lot of water, excess water dosage and as a result of that fertilizer is leached. So if you really tighten that kind of a thing you look at the use of fertilizer for different kinds of crops and different kinds of soils and if you look at it then probably fertilizer subsidy can be contained in a very rational way. But I do not think that the government is really doing anything on that. I would prefer whatever subsidy to be given to the farmer I think you give in some other way. I do not think we should mix it with this price because somehow this has really not worked well.

Q:  What do you think should be the forward in terms of fertiliser subsidies?

Jha: According to me, the way should be that all these subsidies should be properly targeted. Wherever it can be phased out they should be phased out. The important here is that I am not suggesting that we do away with subsidies all together. It is a fact that there are a lot of people in this country who still need to be helped but the best way of helping them is to give them the money by which they can buy what they need rather than try to go about it in a round about fashion and in the process subsidize people who don't need to be subsidized.