India considering urea price hike to curb fertilizer subsidies
Modi will have the final say on a proposal to implement the natural gas price hike from July 1. The gas price increase was put on hold during the recent election, which Modi's Bharatiya Janata Party (BJP) won by a landslide.
A spokesman for the Ministry of Chemicals and Fertilizers declined to comment.
The Farm Ministry is not responsible for urea prices, but a senior official cautioned that any rise would lead farmers to demand higher minimum support prices for their crops.
Finance Minister Arun Jaitley has pledged to uphold fiscal discipline, and in his first budget will have to strike a balance between unwinding subsidies and capping inflation.
India's longest slowdown since the 1980s is putting upward pressure on the 2014/15 fiscal deficit target of 4.1 percent of gross domestic product that Jaitley inherited from the previous government.
The planned gas price hike would increase annual urea output costs by 100 billion rupees ($1.7 billion), according to Satish Chander, director general of the Fertiliser Association of India (FAI).
The previous government allocated 679.7 billion rupees to fertilizer subsidies for this fiscal year. The FAI, however, estimates costs will reach 1 trillion rupees, in part due to payments carried over from last year.
"Following the gas price hike, urea prices need to be raised by 40 to 50 percent. The government can't do it in one go. A 10 percent rise would be a good start," said an official at a state-run fertilizer company.
The urea price has risen just 16.5 percent since 2000 to 5,360 Indian rupees ($91) per tonne, while prices of other crop nutrients like diammonium phosphate (DAP) have nearly tripled and muriate of potash (MoP) has quadrupled. The growing price gap has led farmers to use urea indiscriminately, industry executives said.
India's annual urea consumption has jumped by half to 30 million tonnes over the past decade. It produces 22 million tonnes of urea a year and has to import 8 million tonnes to meet demand, the FAI estimates.
"It has been kept almost flat for last 10-15 years. The time has come (for) a rational, step-by-step process of increasing prices," said R. Mukundan, managing director at Tata Chemicals.