Ministers panel recommends hike in fixed cost of urea, subsidy

A group of ministers today recommended a Rs350 per tonne increase in the fixed cost paid to urea producers, raising the government's subsidy burden by an additional Rs900 crore.

There will, however, be no increase in the price of the crop nutrient for farmers as te government will bear the additional cost.

The GoM's recommendations follow a proposal moved by the fertiliser ministry for a modified New Pricing Scheme (NPS) III for calculating the production cost of urea.

Under the NPS, the fertiliser subsidy is based on the fixed cost of urea.

"The group of ministers has agreed to raise the fixed cost of urea by Rs350 per tonne and it would lead to increase in subsidy by Rs900 crore," fertiliser minister Srikant Jena said, adding that the proposal would be moved before the Cabinet Committee on Economic Affairs (CCEA).

"The new scheme would remain applicable for one year from the date of notification," he said.

As per the proposal, the fixed cost of urea produced by plants, which are 30 years old or more would be increased by Rs150 per tonne, while for all other plants it would be raised by Rs350 per tonne.

The minimum fixed cost would be Rs2,300 per tonne though this would not have any impact on urea prices for the farmer.

Fixed cost for a urea plant includes mainly salary and wages, including cost of contract labour, repair and maintenance costs and selling expenses.

The base year for calculating fixed cost of urea has been changed from 2002-03 to 2008-09.

The fertiliser industry has been seeking an upward revision of the fixed costs of urea by at least Rs700 per tonne and fixing the base year as 2011-12.

NPS-III scheme, based on cost of production of urea with 2002-03 as the base year, was approved in 2007. The scheme, which was originally effective from October 2006 to March 2010, has now been extended for three more years.

The government has fixed the maximum retail (MRP) price of urea at Rs5,360 per tonne, which is lower than the actual production cost. It reimburses the difference between production cost and MRP to urea firms in the form of subsidy.

Government has provided Rs70,585 crore as fertiliser subsidy in this year's budget.

India produces about 22 million tonnes (MT) of urea and imports around eight million tonnes to meet the shortfall.

According to industry body FAI, an additional Rs40,000 crore would be required for clearing the total fertiliser subsidy.