New Delhi, June 13: The Cabinet Committee on Economic Affairs (CCEA) will take up a proposal to hike urea prices by Rs 500 a tonne as part of a series of steps to cut subsidies in the face of an economic slowdown.
The move is expected to save up to Rs 5,000 crore in subsidies and reduce farmers' penchant for overusing urea. Excessive use of this fertiliser has reduced the productivity of large tracts of land in the grain bowls of Punjab, Haryana and western Uttar Pradesh.
During the debate on the finance bill, finance minister Pranab Mukherjee had indicated tough steps to keep the subsidy bill within 2 per cent of the gross domestic product.
Urea is priced at Rs 5,300 a tonne and is expected to be increased to Rs 5,800 a tonne.
Earlier, the government had raised petrol prices and indicated that it would work with the state governments to slash taxes on petrol and diesel to reduce its subsidy burden.
The department of fertilisers' proposal to hike urea prices has been strongly supported by the agriculture ministry, which avers that the move will check the widespread use of the chemical fertiliser and shift focus to costlier nitrogenous and potash-based fertilisers.
Agriculture minister Sharad Pawar had also advocated the hike to address the imbalance in fertiliser use.
In the last 10 years, the government had raised urea prices just once by Rs 500 a tonne. Earlier this year, the subsidy on phosphate and potash-based fertilisers was slashed by up to 30 per cent; officials had at that time hinted at a reduction in urea subsidy, too.
The finance ministry had suggested that urea prices be raised in a staggered way by 7-10 per cent every year for three years.
Last year, fertiliser subsidy was estimated to cost the government Rs 67,000 crore. Though the Centre has allocated Rs 60,000 crore in the budget for fertiliser subsidy this year, it is likely to shoot up to around Rs 75,000 crore because of the higher cost of imported urea.
Officials said the proposal was likely to be cleared soon as urea prices had to be announced ahead of the kharif planting season.
This will test the political acceptability of the government's resolve to reduce subsidies by hiking urea prices. If this passes muster without attracting excessive political opposition, especially from pro-farmer parties, the Centre can go ahead with its plan to cut diesel subsidies.