In a disappointment to the fertilizer companies, the fertilizer ministry has clarified that so far there has been no proposal of urea price hike. The clarification came on the heels of the rumors suggesting of government considering a proposal for raising urea prices by at least 10%, in order to contain huge subsidy costs that are straining the budget. As per reports, two options of price hike were being considered, with the first one being of price hike included in the budget announcements in July and the other one being approved by the Cabinet.
Though, as per the fertilizer ministry urea price hike is inevitable given a marginal increase in urea price over a decade and projected rise in the fertilizer subsidy bill after a potential natural gas rate hike. Nevertheless, the ministry suggested that issue of price hike would be deliberated upon once the gas price hike have been announced and implemented.
Urea, the most used crop nutrient, is a controlled commodity, whose maximum retail price (MRP) is fixed at Rs 5,360 per tonne. The government pays manufacturers the difference between cost of production and MRP. The commodity’s hike depends much upon the natural gas price hike as natural gas accounts for as much as 65% of urea production costs in India. Meanwhile, Fertilizer plants collectively are the biggest consumer of domestically produced gas, which supplies of 31.5 million standard cubic meters of the fuel daily.
Notably, country's urea production has stagnated at 22 million tonnes since 2007-08, while current demand is about 30 million tones, leaving a shortfall of 8 million tones, which is met through imports, as no urea capacity has been added in India in the past almost 13 years.
In the interim budget, UPA government’s proposal to keep the fertiliser subsidy for 2014-15 about the same level as the previous financial year, drew sharp criticism from the industry, facing a liquidity crunch because of delayed subsidy payments.
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