Govt brings non-urea fertilisers under price control, fixes profit margins

The Indian government has brought fertilisers that receive nutrient-based subsidy (NBS) support under “reasonable pricing” controls.

Key Highlights

• Government to notify di-ammonium phosphate (DAP), muriate of potash (MOP) and all other such fertilizer to be under “reasonable pricing” controls.
• NBS fertilisers — unlike urea, whose maximum retail price (MRP) is fixed by the government — are technically decontrolled.
• Under the NBS scheme, introduced in April 2010, their MRPs are supposed to be market-determined and set by the individual companies selling them.
• The government merely pays a fixed per-tonne subsidy on each of these fertilisers, linked to their nutrient content or specific percentage of nitrogen (N), phosphorous (P), potassium (K) and sulphur (S).
• The guidelines,have prescribed maximum profit margins that will be allowed for fertiliser companies – 8% for importers, 10% for manufacturers and 12% for integrated manufacturers
• The new guidelines impose indirect MRP controls on non-urea fertilisers by capping the profits that companies can earn from their sales.
• These will be based on their “total cost of sales”, which would cover cost of production/ import, administrative overheads, selling and distribution overheads, and net interest and financing charges.
• Deduction for dealer’s margin will be allowed to the extent of 2% of the MRP for DAP and MOP, and 4% for all other NBS fertilisers.
• The guidelines have mandated fertiliser companies to “self-assess” unreasonable profits, based on the cost auditor’s report along with audited cost data approved by their board of directors.
• This report and data has to be furnished to the DoF by October 10 of the following fiscal year.
• “Non-urea fertilisers are already under informal price control, which will definitely continue till the Lok Sabha elections are over.

Prelims Takeaway

• Non-urea fertilisers
• Nutrient Based Subsidy