Nitrogen: India considers change to urea pricing

India's re-elected government is evaluating the inclusion of urea in its nutrient-based subsidy (NBS) scheme to promote more balanced fertilizer use.

The government introduced the NBS scheme, under which a fixed amount of subsidy is allocated annually to each grade of fertilizer based on their nutrient content, in 2010.

Urea is the sole exception to this. The maximum retail price (MRP) for urea is set by the government and has remained at the very low level of Rs 5,360/t bagged ($77/t) for many years, necessitating huge subsidy payments to producers and importers.

The very low price has also distorted fertilizer consumption in India, raising urea usage at the expense of other products.

Successive governments have been keen to raise the MRP to reduce subsidy payments and boost phosphate and potash usage, but have shied away for political reasons.

With a solid majority in the lower house of parliament, the new BJP government is in a position to reconsider urea pricing and is said to favour a gradual increase in the MRP.

It did, though, say in advance of the recent general election, that no change would be made to the current system during the 2019-20 fiscal year, so the earliest any change could take place is April 2020.

Fraught with difficulty

While the principle is easy accept, implementation of a switch to nutrient-based pricing is fraught with difficulty.

Prices for other fertilizers in NBS have been decontrolled but the government will wish to maintain some control over urea pricing to prevent too rapid an escalation in prices.

However, this raises questions over how the government will respond to movements in international market prices for the urea that it imports: India bought about 7.5mn t of urea from foreign suppliers in 2018-19.

One suggestion is to have quarterly changes in import parity prices, while keeping urea as a controlled fertilizer and also maintaining the government's monopoly over urea imports for sale to farmers, so-called canalisation of imports.

This is seen as important to prevent overseas suppliers undercutting domestic producers, who face higher costs for gas.

Indian factories produced close to 24mn t of urea in 2018-19 and the government has an ambitious, and very costly, plan to raise production so as to reduce imports over the coming 3-5 years.