A lot of gas...

IIPM Economy Review

Fertiliser subsidies are as scandalous as gas pricing!

The unseemly brouhaha raised over gas pricing in India is quite natural. After all, many billions of dollars and many more corporate fortunes are linked intimately with gas prices. Potential buyers of gas from the Godavari basin (mostly controlled by Mukesh Ambani of Reliance Industries Ltd.) like power and fertilizer companies feel that high gas prices will throw their projects and plans completely out of gear. Fertiliser companies are lobbying hard with the newly appointed Group of Ministers (GOM) mandated to look into the issue. They say that high gas prices will lead to an unsustainable rise in fertiliser subsidies. And that Indian farmers could be hurt.

That brings me to a core, and often neglected issue: have fertiliser subsidies helped Indian farmers? Or have they been fattening corporate bottomlines even as the rural poor continue to languish in dire poverty? Lets face it. Only rich farmers can afford to buy subsidies (just as only middle class and rich urban Indian families can afford ‘subsidised’ LPG cylinders). The relation between poor farmers & landless peasants with fertiliser is just as intimate as the relation between Osama bin Laden and peaceful co-existence. Yet, in the name of the rural poor and the farmer, the government is currently spending about Rs.50,000 crores every year on fertiliser subsidies. What if the same government decided that it might be a better idea to distribute the subsidy in the form of cash doles to the rural poor of India? Yes, every poor Indian in rural areas will then end up getting close to Rs.5,000 every year as cash. Assuming a rural poor family to be having five members, every such family in rural India will get a cash income of Rs.25,000 a year!

Sure, there will be howls of protest from lobbyists and self-important economists. Many would accuse this columnist of being too simplistic. But the fact of the matter is that the fertiliser subsidy regime in the country is crying out for simplicity and transparency. The rules and procedures for claiming subsidies are so complex that even mathematicians would need complex formulae to crack the code! As with many other things in India, this lack of transparency is perhaps deliberately designed to encourage skullduggery. According to the regime, the quantum of subsidies depends upon the capacity utilisation achieved by a fertiliser plant. So there have been repeated situations when many fertiliser companies have reported that their plants have consistently achieved utilisation levels of 120% and even more!

Gas pricing is a complex and important issue no doubt. But, what about the scam of fertiliser subsidies?

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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