Ashok Gulati IFA-FAI National Seminar on Sustainable ... · Infosys Chair Professor for Agriculture, ... IFA-FAI National Seminar on. Sustainable Fertilizer Management for Soil Health.

Ashok GulatiInfosys Chair Professor for Agriculture, ICRIER

IFA-FAI National Seminar onSustainable Fertilizer Management for Soil Health

March 16-17, 2015Hotel Grand, New Delhi

Has India’s Fertilizer Pricing and Subsidy (P&S) policy achieved its basic objectives?

What has been the cost to the exchequer?

Exploring options for change with a view to ‘Unshackling the Fertilizer Sector’ and promoting efficient use of fertilizers

1977: Retention Price Scheme (RPS) (Marathe Committee) (cost plus pricing subject to some efficiency norms))

1991/1992: Economic Reforms and Joint Parliamentary Committee (JPC)

2000: Expenditure Reforms Commission (Geethakrishnan)

2010: Nutrient Based Subsidy (NBS)

High imports of wheat during 1973-76 in the wake of global price eruption and weak monsoons at home

Acute scarcity of foreign exchange necessitating self-sufficiency in basic staples and fertilizers (urea)

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

1960 1961 1962 1963 1964 1965 1966 1967 (P)

1968 (P)

1969 (P)

1970 (P)

1971 1972 1973 1974 1975 1976 1977

Net

Impo

rt (M

MT)

Net Import of Wheat in India (Million Tonnes)

Net Import (Million Tonnes)

Onset of GR

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

0

500

1000

1500

2000

2500

Wor

ld P

rice

of W

hear

, US

HRW

(USD

/MT)

Fore

x Re

serv

e (in

USD

Mill

ion)

Year

Forex Reserve in India vis-a vis world Price of Wheat1960-61 to 1975-76

Forex Reserve (USD Million) World Price of Wheat, US HRW (USD/MT)-RHS

2.4

5.0

8.8 8.1 8.0

5.4 5.5

9.7

6.55.0 5.7

12.0

22.120.4

0.0

2.0

4.0

6.0

8.0

10.0

12.0

0

5

10

15

20

25

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

(Est

)

Mill

ion

Tonn

es

Rice Wheat Maize Others Value of Exports (US$ Bn)

35.7

63.0

80.573.9

0

10

20

30

40

50

60

70

80

90

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

Mill

ion

tonn

es

Rice Wheat Norm

Stocks as on 1st July of the year

Source: DFPD

0.00

5.00

10.00

15.00

20.00

25.00

0

20000

40000

60000

80000

100000

12000019

80-8

119

81-8

219

82-8

319

83-8

419

84-8

519

85-8

619

86-8

719

87-8

819

88-8

919

89-9

019

90-9

119

91-9

219

92-9

319

93-9

419

94-9

519

95-9

619

96-9

719

97-9

819

98-9

919

99-0

020

00-0

120

01-0

220

02-0

320

03-0

420

04-0

520

05-0

620

06-0

720

07-0

820

08-0

920

09-1

020

10-1

120

11-1

220

12-1

3 20

13-1

4 R

E

Tota

l Sub

sidy

in U

SD B

illio

n

Tota

l Sub

sidy

in R

s. C

rore

s

Year

Total Subsidy in Rs. Crores Total Subsidy in USD Billion (RHS)

0.00

0.50

1.00

1.50

2.00

2.50

3.00

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Fert

ilize

r, Fo

od a

nd P

etro

leum

sub

sidy

as

a pe

rcen

tage

of G

DP

Perc

ent

Year

Changing composition of total subsidy

Food Subsidy Fertilizer SubsidyPetroleum Subsidy Other SubsidyFertilizer, Food and Petroleum subsidy as a percentage of GDP

Fertilizer subsidy

1.72

10.24

21.79

0

20000

40000

60000

80000

100000

120000

0.00

5.00

10.00

15.00

20.00

25.00

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Fert

ilize

r Su

bsid

y (in

Rs.

Cro

re)

Perc

enta

ge

Year

Fertilizer Subsidy as a % of GDP Fertilizer Subsidy as a % of Agricultural GDP

Fertilizer Subsidy as a % of Tax Revenue Total Fertilizer Subsidy (in Rs. Crore)

14.7 16.4 16.1

2.1

13.06.7

0

5

10

15

20

25

30

35

Prod

uctio

n an

d im

port

of F

ertil

izer

s (M

illio

n M

T)

Year

Production Import

87.6

85.9

89.6

87.6 84.8

74.7 72.5

66.058.5

63.957.0

55.7

64.4

70.5

12.4

14.1

10.4

12.415.2

25.227.4

34.0

41.5

36.1

43.044.3

35.6

29.5

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

Perc

enta

ge

YearProduction as % of Availability Import as a % of Availability

Year

NPK ratio

All-India Haryana Punjab RajasthanAndhra Pradesh

1 2 3 4 5 6

2000-01 7.0:2.7:1 73.9:21.3:1 42.5:11.9:1 92.1:30.5:1 6.5:2.9:1

2007-08 5.5:2.1:1 39.8:10.9:1 34.3:9.0:1 33.7:12.5:1 3.8:1.7:1

2008-09 4.6:2.0:1 32.2:10.7:1 23.6:6.7:1 30.2:13.6:1 3.5:1.7:1

2010-11 4.7:2.3:1 20.5:7.1:1 19.1:5.9:1 24.9:11.8:1 3.9:2.1:1

2011-12 6.7:3.1:1 27.2:9.8:1 26.8:8.5:1 34.9:15.9:1 6.1:3.2:1

2012-13 9.9:3.3:1 61.4:18.7:1 61.7:19.2:1 44.9:16.5:1 7.1:2.8:1

53605360

26075 25184

20636

17972

0

5000

10000

15000

20000

25000

3000019

81-8

219

82-8

319

83-8

419

84-8

519

85-8

619

86-8

719

87-8

819

88-8

919

89-9

019

90-9

119

91-9

219

92-9

319

93-9

419

94-9

519

95-9

619

96-9

719

97-9

819

98-9

919

99-2

000

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

MR

P of

Ure

a, D

AP

and

MO

P (R

s./M

T)

Year

MRP of Urea MRP of DAP MRP of MOP

Need to see urea prices in relation to minimum support prices (MSPs) for major crops (wheat and rice)

Also see the weight of fertilizers (especially urea) in MSP

3.8:1

2.8:1

1.9:1 1.9:1

1.3:1 1.0:1

2.6:1

1.4:10.9:1

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Ratio

of M

SP o

f Ric

e an

d W

heat

to P

rice

of U

rea

Ratio of MSP of Rice and Wheat to Urea in Selected Countries-2014

MSP Rice: Price of Urea MSP Wheat: Price of Urea

580.5505.0

408.3 388.1330.2

291.0384.6

320.0226.6

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

MSP

of R

ice

and

Whe

at-U

SD/M

T

MSP (USD/MT) Comparison Between Selected Countries-2014

MSP Rice MSP Wheat

Only 7-8 percent in Punjab

If urea prices go up by 200%, and MSP remains frozen, situation worsens for Indian farmer…politically not a viable option

But if MSP of say wheat raised to the level of MSP in Pakistan ($320/MT) or China ($385/MT), Indian farmer will be much better off (but food subsidy will balloon)

Rs 7000/ha (NSA 140 m ha), subject to Soil Health Cards

Deregulate fertilizer prices (including urea) with open imports at zero duty

Provide gas to urea plants at uniform price

Time to switch gears from price policy to income policy…

Politically feasible; Operationally possible to link with UID and Jan Dhan in 1-2 years (Issue of land records)

Expected gains: Diversion to non-agri uses and smuggling to neighboring countries will stop

Better NPK usage; better yield response

Subsidy bill may come down by 15-20%

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00

900.00

0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 100.00

Rate

of c

once

ssio

n an

d w

orld

Pric

e (U

SD/M

T)

Cumulative production (%)

Supply Curve of urea and world price

Rate of Concession World Price 2014

GX92

GP92GX92

GX92

GX92GP92

GP92 GP92GX92

GP92GP92

GX92GX92

GP92GX92

GX92GP92

GX92 GX92GX92

GX92GX92

GX92 GX9

2

GX92

GX92

NN

N

N