Subsidy to fertiliser industry: ECC panel suggests reduction in ST and GDS
November 30, 2012: With the objective of providing subsidy to fertilizer industry, it was proposed to the Economic Co-ordination Committee (ECC) of Cabinet to reduce sales tax rate on fertiliser from existing 16 percent to 11.3 percent and reduce Gas Development Surcharge (GDS) by Rs 68/mmbtu.
Sources said that sub-committee of the ECC was constituted to suggest: (i) a mechanism for provision of subsidy so that it actually reaches farmers; (ii) ways and means for bringing down the prices of domestic fertiliser; and (iii) a mechanism for provision of gas to fertiliser factories. The ECC further directed the committee to submit its recommendations in the next meeting.
The sub-committee comprising Deputy Prime Minister/Senior Minister for Industries (Convenor), Advisor to the Prime Minister for Petroleum & Natural Resources, Deputy Chairman, Planning Commission and Secretary Ministry of Industries recommended to the ECC that the best mechanism for provision of subsidy to farmers is to ensure ample availability of urea to counter hoarding and artificial price hike and added that price must be printed on the bags to avoid customer exploitation.
It was also recommended that availability of urea in accordance with the demand can be ensured through a combination of provision of gas to the local fertiliser industry and import of 200,000 tons of urea in time for Rabi season 2012-13. About the reduction in prices of urea, the committee recommended that price reduction can be achieved either through continuous and assured supply of gas to fertiliser plants with immediate effect or through provision of subsidy by the government.
One possible avenue of subsidy, it was proposed, is reduction of Rs 68/mmbtu in GDS and reduction of Rs 75/bag in GST by reducing existing rate of 16 percent to 11.3 percent. With this subsidy, current urea price of Rs 1659 per bag can be brought down to Rs 1,500.
Additionally, the Ministry of Petroleum and Natural Resources was proposed to provide 100 mmcfd gas daily to produce 100,000 tons of urea. If gas supply to the industry is provided constantly, the industry would consider further reduction in price of urea. The committee further stated that the industry has further committed that if 200 mmbtu per day is provided to the fertiliser industry it would reduce the price of urea by Rs 150 without government subsidy.
The ECC was informed that urea offtake during Rabi 2010-11 was 3,160,466 tons, whereas prices fluctuated between Rs 830 to Rs 1,155. Similarly, urea offtake for Rabi 2011-12 was 2,710,845 tons while the price oscillated between Rs 1,580 to Rs 1,795. Urea offtake, the ECC was informed, decreased in Rabi 2011-12 by 14.2 percent, negatively affecting the wheat productivity.
A decrease of monthly offtake with monthly prices for the period January 2010 to September 2012 indicates that at the subsidised price of Rs 1,500, the offtake is likely to be 2.77 million tons against previous Rabi offtake of 2.71 million tons; with October 2012 sales of urea being close to 250,000 tons, the total subsidy amount for the remaining season will be approximately Rs 7.5 billion.