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Higher input cost to push up urea subsidy

New Delhi, Dec. 25 (PTI): Fertiliser subsidy on urea may go up Rs 350 per tonne as the fertiliser ministry is considering the industry’s demand to raise the fixed production cost incurred by manufacturers.

According to sources, the fertiliser ministry is likely to propose an increase of Rs 350 per tonne in the cost of production of urea against the industry’s demand for a hike of Rs 700 per tonne.

The proposal is being prepared for consideration of a group of ministers (GoM) headed by agriculture minister Sharad Pawar, the sources said.

Urea is sold at a maximum retail price (MRP) of Rs 5,360 per tonne to farmers. The government reimburses the difference between production cost and the price to manufacturers in the form of subsidy. India produces about 22 million tonnes of urea and imports 8 million tonnes to meet the shortfall.

In 2007, the government approved the New Pricing Scheme (NPS) Stage-III for urea units in the country. The scheme was originally effective from October 2006 to March 2010 and now it has been extended for three years. NPS III scheme was based on the cost of production for 2002-03.

Sources said the fertiliser ministry was considering to modify this scheme after factoring in the rise in fixed production cost over the years.

The ministry is planning to take this proposal before the GoM in its next meeting, which may take place in January.

During the first meeting of the GoM in June, the fertiliser companies had made a presentation before the panel and demanded a hike in subsidy by Rs 700 per tonne on the grounds of increase in their fixed costs.

For a urea plant, the fixed cost mainly includes establishment cost, annual maintenance cost, working capital, salaries, interest and other items.

The government has provided Rs 65,971 crore as fertiliser subsidy in the budget, but this is not sufficient to meet the total subsidy requirement.

The Fertiliser Association of India recently said another Rs 40,000 crore would be required to clear the total subsidy payment, including arrears of last year.

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