Importing urea can dramatically lower subsidies — Ashok Gulati

I would say that the hardest nut to crack has been the fertiliser subsidy. Sixty per cent of the subsidy is really to the fertiliser industry, and not to the farmers. This is so because our fertiliser industry at the margin is a high-cost industry. And the primary reason for that is that we don’t have a comparative advantage in gas. I think we need to work out the difference between self-sufficiency and economics. If we import up to 30per cent of our urea consumption, we can save a lot of resources on the fertiliser subsidy front — when you open up to cheap imports the plants at the top end of the cost curve will be knocked out. The more efficient local plants will also expand production, and overall cost of the industry will reduce.

Unfortunately, we’re not giving the correct signals through the retention pricing. We fix separate prices for each plant, and so the efficient plants don’t get any additional profit motive to induce them to expand.

There is the whole issue of `gold-plating’ of capacity by producers.

No plant should get a benefit after 110 per cent capacity utilisation. All who have above this have in all probability over-capitalised their plants — understated their capacity initially and within two years are saying they have 140 per cent capacity utilisation. If we did this, we could save about Rs 2,000 crore. This money can go into watershed, canals, roads, incentives for modernising agricultural markets. Youhave to decide your priorities.

What about increasing urea prices? Is that possible?

If you do it by 10 per cent every year, perhaps it would be digestible. Last year they tried 25 per cent, but had to revert back to zero. I think this time when they have increased the subsidy on nitrogenous and phosphatic ones, there is a case for raising the urea price by 10-15 per cent. This would be a saving if you raise it by 15 per cent of about Rs 800-900 crore. Then attack retention pricing. No plant should be given anything beyond a price of Rs 6,500 or 7,000 a tonne, which would correspond to the international price or what was recommended by the Hanumantha Rao committee report. The moment you do that you save another Rs 700-800 crore.

What should the forthcoming budget have for agriculture?

I hope the Finance Minister takes care of the neglected areas. Public sector investment has declined for quite some time in agriculture. If the Finance Minister can arrest or reverse it he can benefitmillions.

Public sector investment’s primary concerns are investments in canal irrigation. The other area which is very important is rural roads. There is something called the Rural Infrastructure Development Fund, but the funding must be jacked up by Rs 2,000-3,000 crore at least. The rate of growth in foodgrain production has come down substantially. We also need to do modernise our agriculture markets. Everything is manual and results in a lot of wastage. The wastage even in foodgrains is to the tune of 8-10 per cent.

That’s the physical wastage. Besides that there is 10 or 5 per cent which disappears into someone else’s pockets. If we can save at least 10 per cent that’s an additional availability of 20 million tonnes.

But didn’t the FM take many initiatives in his last budget?

Last year, the Finance Minister had announced a good scheme for the farmers and that was the kisan credit card. The idea was that when farmers want credit at short notice, especially when, supposing, there is a pestattack in the cotton fields and they immediately want Rs 20,000 to spray on that crop. If they go to the moneylender the loans are at 30-40 per cent interest. The idea was that you give this credit card and they can immediately go to the bank and get the money. That scheme has started but the momentum is so slow that it has not reached any significant proportions.

That needs to be given a fillip. Particularly those districts where there have been suicides, where cash crops which are risk-prone where there are vegetables or cotton, risk-prone, high-value crops, that’s where liquidity is required at short notice. And certainly cotton. I think in all the cotton-growing areas at least we can do that.

What are the policy lessons of the onion crisis? We are again seeing a glut situation.

I think there are two important lessons. One, we don’t have a proper system for forecasting a crisis. There is also a structural problem in the decision-making process. Some man in Maharashtra conveys that the crop isdamaged to a bureaucrat who takes 20 days to communicate to the next one and then the next one. A policy decision is not taken until there is a fire.

Traders are the ones who take quick decisions. They knew the crop had been damaged and started hoarding. If we had kept onion imports open from the very beginning then we would have contracted forward. This is what market economy is all about. But if you have controls then you don’t allow those millions of decisions to be taken.

The long-term solution to crises in perishable commodities is to propagate food-processing. In the onion crisis, instead of importing onions, we should have imported onion paste or onion powder. All this, of course, leads us on to cold chains and proper cold storage facilities. Unless we develop this area, we’ll continue to waste huge amounts of fruits and vegetables each year.