Gas price hike to set off farm or food subsidy dilemma

Mumbai: India's plan to double gas prices from April, threatens to hit government efforts to cut its fiscal deficit, as higher production costs for the country's most widely used fertiliser force authorities to raise either farm or food subsidies.

Gas accounts for nearly 80 per cent of the production cost of urea, a nitrogenous fertiliser that consumes more than half of the $11 billion India spends each year subsidising farmers for selling fertilisers at below the cost of production.

"The gas price hike will increase the annual urea production cost by 100 billion rupees," said Satish Chander, Director-general, Fertiliser Association of India (FAI).

Government also stated that any increase in the cost of production would be met through a higher subsidy for manufacturers. A less politically palatable alternative will allow manufacturers to pass on the costs through higher prices.

India consumes about 30 million tonnes a year of urea, with local producers supplying 22 million tonnes and the rest imported, FAI estimates. Fearing a backlash from the politically influential farm block, the government has already held urea prices well below those of alternative potash and phosphate-based fertilisers whose producers have been allowed to raise prices since 2010.

The fertiliser subsidy bill has tripled in the past seven years. The government has allocated 679.7 billion rupees in 2014/15