Policy Vacuum in Indian Urea Sector

摘要

Indian urea industry has remained highly regulated since introduction of Retention Pricing Scheme (RPS) in November, 1977. RPS was introduced after oil crisis of early 1970s which resulted in sharp increase in cost of production of fertilisers. The main objectives of RPS were to ensure viability of the fertiliser industry and availability of fertilisers to the farmers at reasonable prices. RPS prescribed a controlled maximum retail price for farmers. It also provided for calculation of cost of production of each urea unit including an element of return on net worth. It was called retention price of the units. Every unit had its own retention price. Urea units were reimbursed the difference between retention price and the farmers retail price (MRP). The policy of the RPS encouraged investment in the sector resulting in build-up of large production capacity in 1980s and 1990s. However, in its anxiety to reduce subsidy, Government kept on tightening of normative parameters and did not recognize legitimate cost on several accounts. Government did not address the basic reasons for increase in subsidy viz., higher cost of inputs, stagnant MRP over a long period and increase in consumption of fertilisers.