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HISTORY OF FERTILISER PRICING AND SUBSIDY IN INDIA

Introduction
Subsidies have been used in India as an important instrument of development policy to fulfill growth and distributional objectives. In the agricultural sector, input and credit subsidies have been extensively used along with support prices to At the time of introduction of these subsidies attainment of self-sufficiency in food grain production was of prime in the 1950s and 1960s. The policy of input subsidies and price support helped in attaining the objective of self-sufficiency in food grains.

Trends in subsidies
Although control on fertilizer prices was introduced in 1943, till the early 1970s there was no burden on the central budget on account of fertilizer subsidy. The situation changed radically after 1973-74 following the first oil price shock . The introduction of the Fertilizer Retention Price Scheme 1977 further contributed to the sharp rise in budgetary subsidy to fertilizer sector . Fertilizer subsidy, which stood at a meager Rs 60 crores in 1975-76 increased nearly 10-fold to Rs 603 crores in 1978-79 . It jumped to Rs13,250 crores in 1999-00. As a percentage of GDP, fertilizer subsidy has increased from 0.26 per cent to 0.79 per cent over this period. Its share in total central government subsidy has also gone up from around 20 per cent to over 50 per cent.

Trends in subsidies
Fertilizer subsidy has been increasing at a faster rate than total subsidy of the central government (Table 2). It increased at the rate of nearly 30 per cent during the 1980s. The growth rate came down to 12.85 per cent during the 1990s when a determined effort was made to bring down the fiscal deficit. However, since the mid-1990s we again find that the growth rates on subsidies have increased sharply. The ratio of subsidies to GDP has, however, steadily declined in the 1990s.

History
Indian Fertilizer Subsidies began in 1977 with the introduction
of the Retention Price cum Subsidy scheme (RPS). RPS, in which the government set fertilizer prices for farmers at below the cost of production, remained in place until 2003, although fertilizer prices rose rapidly in the 1990s under a neoliberal economic agenda. In 2003, RPS was replaced with the New Pricing Scheme (NPS).

1977: Retention Price cum Subsidy scheme (RPS)


"Government introduced RPS, a cost-plus approach, for nitrogenous fertilizers in November 1977 and extended to complex fertilizers in February 1979. Under RPS the retail price of fertilizers was fixed and was uniform throughout the country and difference between the retention price (adjusted for freight and dealers margin) and the price at which the fertilizers were sold to the farmer was paid back to the manufacturer as subsidy. In other words, under RPS, the government fixed the consumer price of fertilizer and then paid the fertilizer manufacturer enough to cover the cost of production plus 12% profit.

All fertilizers were sold at the government-set price, so imported fertilizers were subsidized as well. In August 1992, phospahtic and potassic fertilizers were removed from the RPS system. Later, in October 1994, ammonium chloride, ammonium sulphate and calcium ammonium nitrate were also removed, leaving only urea. RPS was dismantled in March 31, 2003 and was replaced with the New Pricing Scheme (NPS) on April 1, 2003.

1991: Neoliberal Economic Program


When India's New Economic Policy of 1991 was instituted, cuts in fertilizer subsidies were a part of the package. Fertilizer prices had remained the same for the previous decade. Government spending on fertilizer subsidies had increased from $780 million in 1985 to over $1.5 billion in 1990. In the summer of 1991, Indian Finance Minister Manmohan Singh announced a 40 percent price hike for fertilizer. After an initial 40% price increase for urea in late July 1991, the government backed down on August 14, lowering prices so the increase was only a 30% one. For the next decade, prices continued to rise at a rapid pace. Despite the price increases to farmers, the cost of urea subsidies to the Indian government remained high initially - in part because the 23% devaluation of the rupee in mid-1991 made imports more expensive.

Urea Pricing Policy


Until 31.3.2003, the subsidy to urea manufacturers was being regulated in terms of the provisions of the erstwhile Retention Price Scheme (RPS). The expenditure Reforms Commission (ERC), headed by Shri K.P. Geethakrishnan, had also examined the issue of renationalizing fertilizer subsidies. New Pricing Scheme (NPS) for urea was introduced in 1st April, 2003. The Stage- I of NPS was of one year duration from 1 April, 2003 to 31st March, 2004 and Stage-II was of two year duration from 1st April to 31st March, 2006. With the Stage-III of NPS being implemented w.e.f. 1st October, 2006.

Formulation of policy for existing urea beyond Stage-III of New Pricing Scheme
A Group of Minister (GoM) constituted to review the fertilizer policy has decided in the meeting held on 5th January 2011 to set up a Committee under the Chairmanship of Shri Saumitra Chaudhuri, Member, Planning Commission to examine the proposal for introduction of Nutrient Based Subsidy (NBS) in urea and to make suitable recommendations.

The Government introduced Nutrient Based Subsidy Policy w.e.f. 1.4.2010 (w.e.f. 1.5.2010 for SSP) in continuation of the erstwhile Concession Scheme for decontrolled P & K fertilizers. Initially, the ad-hoc Concession Scheme was introduced for subsidy on DAP, MOP, NPK Complex fertilizers. This scheme was also extended to SSP from 1993-94.

Title

Formulation of policy for existing urea beyond Stage-III of New Pricing Scheme
A Group of Minister (GoM) constituted to review the fertilizer policy has decided in the meeting held on 5th January 2011 to set up a Committee under the Chairmanship of Shri Saumitra Chaudhuri, Member, Planning Commission to examine the proposal for introduction of Nutrient Based Subsidy (NBS) in urea and to make suitable recommendations.

Title

Formulation of policy for existing urea beyond Stage-III of New Pricing Scheme
A Group of Minister (GoM) constituted to review the fertilizer policy has decided in the meeting held on 5th January 2011 to set up a Committee under the Chairmanship of Shri Saumitra Chaudhuri, Member, Planning Commission to examine the proposal for introduction of Nutrient Based Subsidy (NBS) in urea and to make suitable recommendations.