Government moves to rein in subsidies, starting with urea

The centre is moving ahead with plans to rationalise all subsidies and ensure stability in investment policies so that businesses get the right direction as to when and where to invest, finance minister Arun Jaitley said today.

Speaking at a CII function in Chennai, the finance minister said there was a need to rationalise all subsidies to attract investments and drive growth.

''From January 1, LPG subsidy is going through banks...We have to gradually rationalise all possible subsidies,'' the minister said at a function ahead of the 2015-16 Budget.

Reports, meanwhile, said the government is weighing plans to remove price controls on urea, the most widely-used fertiliser in the country, and scrap the 5-per cent import duty on the plant nutrient in a bid to check its subsidy costs and cut wasteful use.

Urea use has increased over the decade and with it the government's subsidy burden as governments over the years kept urea prices below the cost of production in a bid to appease farm lobbies.

The Modi government is now looking at decontrol of the maximum retail price (MRP) of urea, which is currently fixed at Rs5,360 ($87) per tonne, reports citing officials said.

The government could also raise the MRP by about 20 per cent annually for the next three years, the report added.

The price for urea has risen only 16.5 per cent since 2000, while the price of di ammonium phosphate has nearly tripled and that of muriate of potash has quadrupled. Farmers have been led by the increasing price gap to use urea indiscriminately.

The fertiliser ministry had pitched for a hike in urea prices even last year, but could not due to a subdued monsoon.

Liberalising urea prices would also help domestic fertiliser companies such as Chambal Fertilisers and Chemicals and Rashtriya Chemicals and Fertilizers Ltd to become viable.

Lifting of import duty will benefit companies like  Potash Corp of Saskatchewan of Canada, Mosaic Co of the United States and Uralkali of Russia, the main sources of fertiliser for India.