GoI accuses Gujarat PSU of "cheating" farmers, orders recovery of fertilizer subsidy paid to it

By Rajiv Shah 
Top Gujarat government public sector undertaking (PSU), Gujarat State Fertilizers and Chemicals (GSFC), has been charged for fleecing the farmers by not providing them with fertilizers at a subsidized rate, despite the fact that it was bound to do it under Government of India (GoI) rules. In a letter dated March 18, 2013, the Union ministry of chemicals and fertilizers, has regretted that “the subsidy paid by the government to GSFC has not been passed on to the farmers by the company”, adding, “This (has) defeated the very purpose for which the subsidy is paid by the government.”
Written in the form of an office memorandum, and signed by PB Sahu, undersecretary, department of fertilizers, Government of India, the letter, which has been sent, among others, to Atanu Chakravartty, managing-director, GSFC, further regrets that despite requests by the department of fertilizers to provide details why the subsidies were not passed to the farmers, the GSFC chose “not provided any data and justification to substantiate that subsidy paid by the Government of India has not resulted in undue gains to the company.”
The letter therefore orders, “Accordingly, after careful examination of the matter, it has been decided to recover the subsidy already paid to GSFC on account of ammonium sulphate with effect from April 1, 2010, to till date and not to pay any further subsidy to the company against any remaining or future claims on this grade of fertilizer. For the purpose of recovery, subsidy paid on the inventory of stocks of ammonium sulphate as on April 1, 2010 and on the quantities of ammonium sulphate produced and sold on or after April 1, 2010, shall be considered.”
While the letter gives no details on the proposed amount to be recovered from the GSFC, according to sources in the Gujarat government’s energy and petrochemicals department, it would be “around Rs 600 crore.” If this amount is paid, it would mean that the GSFC, whose net annual profit was Rs 459.66 crore as on December 31, 2012, down from 527.23 crore in the previous 12 months, would have to slip into a loss-making company. In the last quarter of last year (2012), the GSFC’s profit was Rs 136.49 crore as against Rs 172.35 crore in the last quarter ending 2011.
Written under the header “Payment of subsidy to Gujarat State Fertilizers & Chemicals Ltd (GSFC) on Ammonium Sulphate under Nutrient Based Subsidy Policy”, a copy of which has been obtained by the www.counterview.net, the letter says the decision to recover the subsidy amount has been taken after “the issue of payment of subsidy to Gujarat State Fertilizers & Chemicals Ltd. (GSFC) on ammonium sulphate under nutrient-based subsidy policy (was) under examination of the department for some time.”
It explains, “Fertilizer subsidy is paid by the government to make available fertilizers at lower prices to the farmers. The subsidy which is meant for farmers is paid to the companies for transferring the same to the farmers in the form of reduced maximum retail price (MRP) of fertilizers”, adding, “Prior to April 1, 2010, subsidy to the fertilizer companies were paid under the concession scheme, under which the MRP of fertilizers was fixed by the government and difference in normated delivered cost and the MRP was paid as subsidy to the company.”
The letter points to how under the subsidy scheme, which prevailed before April 1, 2010, the GSFC had decided to opt out of it. It says, at that time, the GSFC had pointed out that “MRP of ammonium sulphate fixed by the government was high and farmers were showing resistance to such high MRP affecting their sales. Accordingly, GSFC voluntarily opted out of concession scheme with effect from April 1, 2009 for ammonium sulphate which enabled them to fix their own MRP, state wise, depending on the production cost and freight incurred. Therefore, GSFC was out of concession scheme for ammonium sulphate grade of fertilizer with effect from April 1, 2009.”
With effect from April 1, 2010, the policy changed, and the subsidy on P&K fertilizers began being paid “under nutrient-based Subsidy (NBS) policy, under which a fixed subsidy decided on annual basis, is provided on subsidized fertilizers as per their nutrient content. The MRP is allowed to be fixed by fertilizer companies at reasonable level.” Under this policy, ammonium sulphate (caprolactum grade) produced by GSFC was found “eligible for subsidy under the scheme.”
Hence, GSFC began receiving subsidy “under NBS policy with effect from April 1, 2010.” However, the office memorandum regrets, “It was noticed that in spite of getting subsidy under NBS policy, the MRP fixed by the company continued to remain at same level. In other words, the subsidy paid by the government to GSFC has not been passed on to the farmers by the company. This defeated the very purpose for which the subsidy is paid by the government.”
The GoI order comes at a time when an increase in gas prices without a commensurate rise in subsidy allocation would only intensify the financial woes of the fertilizer industry in India. This follows C Rangarajan committee report, which suggested linking gas prices to international prices, The recommendation, if implemented, it is believed, would double the gas price for fertilizer companies from the current $4.2 per million British thermal unit to $8-8.5 per mmBtu. Natural gas is the primary raw material for urea production for GSFC, apart from many others.
The move also comes at a time when, for the next fiscal year (2013-14), the budget has provided Rs 65,971 crore toward fertilizer subsidies, marginally lower than the Rs 65,974 crore in the current financial year. This has been done, to quote official sources, in order to comply with the strategy to lower the fiscal deficit of the government. In fact, previously, fertilizer companies were expecting finance minister P Chidambaram to reduce the provision for fertilizer subsidies by 10%. But then the expectation was that urea prices would also be increased -- thus passing on the extra costs to the farmers). Hence, this did not happen.