The Modi government is putting on hold its plans for some key economic reforms Union Finance Minister Arun Jaitley had announced in his maiden Budget last July.
These include decontrol of urea prices, fewer subsidised cylinders a year and withdrawal of kerosene from the public distribution system (PDS).
Fertilizer Minister Ananth Kumar told The Hindu that the administered price controls for urea would stay. “We are committed to keeping the policy pro-farmer,” he said.
Fear of a political backlash based on inputs from party leaders — now established by the rout in the Delhi Assembly elections — has forced the hands of the government.
Asked if the government’s unpopular reform proposals were behind the victory of the Aam Aadmi Party in Delhi, Mr. Kumar said: “Narendrabhai Modi was and always will be pro-farmers.”
AAP promised expanded PDS, lower fertilizer prices
Protecting and even expanding the PDS and keeping fertilizer prices low were part of the election promises that the AAP made in Delhi.
But the key reforms unveiled by the Modi government in its Union Budget last July included decontrol of urea prices, fewer subsidised cylinders a year and withdrawal of kerosene from the public distribution system (PDS). The rout that the Bharatiya Janata Party faced in the Delhi Assembly elections seems to have forced the hands of the government.
The AAP manifesto says: “The AAP government will end corruption in the PDS with the involvement of mohalla sabhas ... instead of direct cash transfer, we will ensure direct transfer of rations to the families and will include dal and oil in the PDS.”
The AAP supports lower fertilizer prices as it believes high input costs in the face of low procurement prices are pushing the rural economy into distress and thousands of farmers to suicide every year.
The fine print of the July Budget said: “What is now urgently required are certain pricing reforms in the urea sector with an immediate price correction for urea … This is not only essential from the viewpoint of the size of the subsidy bill but also from the viewpoint of balanced use of N, P & K [Nitrogen, Phosphate & Potassium] nutrients.”
Urea is the only fertilizer under statutory price control for which the maximum retail price is fixed by the Centre. The difference between production cost incurred by a manufacturer and the administered concessional price is reimbursed as subsidy. For the purpose of the calculation of the subsidy element, the Fertilizer Ministry, in consultation with manufacturers, determines the production cost for every urea plant separately. As a result, the manufacturers’ lobby is opposed to reform.
The other fertilizers were shifted to a subsidy regime by the Manmohan Singh government under which subsidy is no longer paid to manufacturers on the basis of production cost. Instead, the quantity sold is taken into account.
