Govt defers urea price hike by 10%

Sources said the proposal has been opposed by some ministries as it would hit farmers, who are already bearing the burnt of sharp increase in  phosphatic (P) and potassic (K) fertilisers.

The proposal to increase urea price will be re-examined by the group of ministers, headed by Finance Minister Pranab Mukherjee, they added.

Urea is the only fertiliser that remains under full price control. Its current retail price is Rs 5,310 per tonne. The proposal to hike urea prices was made to redress imbalanced use of soil nutrient and reduce the subsidy burden of the government.

The government mainly provides subsidy on fertilisers, fuels and food. The difference between the cost of production and the Maximum Retail Price (MRP) is paid to manufacturers.

In 2011-12, urea is estimated to have contributed Rs 24,500 crore to the fertiliser subsidy bill. To encourage balanced use of fertiliser, reduce its subsidy burden and to compensate companies of rising input costs, the Fertiliser Ministry had proposed to modify the New Pricing Scheme (NPS) Stage-III instead of decontrolling the urea sector, which has been opposed by various ministries.

Earlier, the government had plans to decontrol the urea sector by bringing it under the nutrient based subsidy (NBS) scheme. The Planning Commission Member Saumitra Chaudhary committee report had also suggested freeing of the sector.

However, the proposal hit road block as the Fertiliser Ministry, among others, opposed it in view of rise in retail prices of phosphatic (P) and potassic (K) fertilisers after they were decontrolled in April 2010.

High prices of P and K fertilisers prompted farmers to use in excess the cheaper urea fertilisers, leading to imbalance in use of soil nutrients.

According to the industry, the annual demand for urea in the country is around 28 million tonne, of which 22 million tonne is indigenously produced and the rest is imported.