Abstracts of Various Committee Reports
Committee on Fertilisers (Sivaraman Committee)
The Government of India constituted a ‘Committee on Fertilisers’ in 1964, headed by Shri B. Sivaraman, Secretary, Department of Agriculture, Government of India, to examine the problems connected with the distribution of all chemical fertilisers, pricing of fertilisers, role of cooperatives in their marketing, and the role of extension services in the promotion and popularisaton of the use of fertilisers. The Sivaraman Committee submitted its report in 1965. The Sivaraman Committee made a number of recommendations, which laid the foundation regarding production, promotion, distribution, and consumption of fertilisers in the country.
Fertilizer Prices Committee (Marathe Committee) Report Part I
To resolve the dilemma of how to keep farm gate prices of fertilisers at an affordable level in the face of rising production / import costs, the Ministry of Chemicals & Fertilizers constituted a committee in January 1976, namely, “Fertilizer Prices Committee,” under the chairmanship of Shri S. S. Marathe, Chairman, Bureau of Industrial Costs, and Prices. The committee was set up to study the basis of existing pricing of fertilisers and recommend a pricing policy which would ensure a fair return on investment on a sustained manner. The objective was to ensure that both producers and consumers of fertilisers found it worthwhile to produce and use fertilisers. The committee was also asked to evolve a pricing policy for pricing of the imported fertilisers in relation to cost of imports. The committee submitted Part I of its Report in May 1977.
Fertilizer Prices Committee (Marathe Committee) Report Part II
The Fertilizer Prices Committee submitted Part II of its report in 1978 which covered pricing of complex fertilisers, equated freight, and distribution of fertilisers. The committee recommended the continuation of ECA allocations introduced in July 1972 and introduction of an equated freight system for each unit. The recommendations of the committee were accepted.
High Powered Committee of Secretaries (B. B. Singh Committee)
In April 1983, the Department of Fertilizers in the Ministry of Chemicals & Fertilizers, constituted a “High Powered Committee of Secretaries”, headed by Shri B. B. Singh, Secretary (Fertilizers), to conduct an in depth study of the Retention Prices Scheme, covering the cost of production, the capital cost of fertiliser plants, the cost of inputs, and seeking an analysis of the factors contributing to the increase in the cost of production and subsidy in order to suggest remedial measures to contain the subsidies.
The Committee evolved a group retention price for each of the different feedstock for existing units and recommended a shift to uniform price later so as to allow plants time to adjust. The committee favoured a tariff adjusted import parity price for new gas based units. None of the major recommendations of the Committee were accepted.
High powered Committee on Fertilizer Consumer prices (G. V. K. Rao Committee) The government of India in the Ministry of Agriculture & Rural Development, Deprtment of Agriculture & Cooperation set up a “High powered Committee on Fertilizer Consumer prices” on 1st May’84. Initially, Dr. A. S. Kahlon was appointed chairman of the Committee. Consequent to the resignation of Dr. Kahlon, Dr. G. V. K. Rao , I.A.S (Retd.) was appointed chairman of the Committee effective from July, 1985. The committee submitted its report in 1987 in which, it made several recommendations. It recognized fertiliser as a key input for agricultural production and recommended the systematic development of the dry lands, improvement in soil testing laboratories, creation of more soil testing capacities, future product pattern in the form of urea, DAP and MOP, with the continuance of existing NPK fertiliser capacity, incentives for fertiliser promotion, monitoring fertiliser use efficiency, strengthening of credit, abolition of sales tax, etc. The committee also felt that the prices of fertilisers could be increased by 5 to 7 per cent, provided the country has achieved a cumulative increase of 30 per cent in the consumption of fertilisers during the preceding 3 years.
Joint (Parliamentary) Committee on Fertilizer Pricing
A Joint Committee on Fertilizer Pricing was formed in 1991 under the Chairmanship of Shri Pratap Rao Bhosale, Member of Parliament (Lok Sabha), to review the method of computation of Retention Prices for different manufacturers of fertilisers and to suggest whether there was any scope for reducing fertiliser prices within the existing scheme or whether a new methodology for fertiliser pricing could be evolved without causing undue strain to the exchequer, and at the same time assuring fair prices to the farmers and a fair return to the manufacturers. The Committee submitted its report on the 20th August, 1992.
The main conclusions and recommendations of the Committee were that the rise in subsidy had been mainly due to rise in the prices of inputs which were not reflected in the farm gate prices, increase in the cost of imported fertilisers, devaluation of the rupee in July 1991 and the stagnant farm gate prices from 1980-1991.The Committee did not favour total decontrol of all fertilisers but recommended decontrol price and distribution of the phosphatic and potassium fertilisers along with a marginal 10 per cent reduction in the consumer price of urea. The committee noted the lack of incentives in RPS for fertiliser units to optimize capital costs of plants, and recommended a detailed study of the RPS as well as the working of the FICC by a Committee of Experts.
High Powered Fertilizer Pricing Policy Review Committee (HPC) (Hanumantha Rao Committee)
The Government of India constituted a ‘High Powered Fertilizer Pricing Policy Review Committee (HPC)’ under the chairmanship of Prof. C. H. Hanumantha Rao , former member, Planning Commission to review the existing system of subsidization of urea, suggest an alternative broad-based, scientific, and transparent methodology, and recommend measures for greater cohesiveness in the policies applicable to different segments of the industry. The HPC, which submitted its report to the Government on 3rd April 1998, recommended that unit-wise RPS for urea may be discontinued and a uniform Normative Referral Price (NRP) be fixed for existing gas based urea units and also for DAP. A Feedstock Differential Cost Reimbursement (FDCR) could be given for a period of five years for non-gas urea units.
Expenditure Reforms Commissio n (ERC)
The Expenditure Reforms Commission headed by Shri K. P. Geethakrishnan , former Finance Secretary, had gone into the question of rationalizing fertilizer subsidies. The commission submitted its report on the 20th September, 2000. It recommended the dismantling of the control system in a phased manner, leading to a decontrolled fertiliser industry at the commencement of fourth stage, which can compete with imports albeit with a small level of protection and a feedstock cost differential compensation to naphtha / LNG based units to ensure self-sufficiency.
First stage (1.2.2001 to 31.3.2002) – The existing urea manufacturing units will be grouped into 5 categories – (i) pre-1992 gas based units, (ii) post 1992 gas based units, (iii) naphtha based units, (iv) FO/LSHS based units and (v) mixed feedstock units. The individual retention prices to be replaced by a fixed concession for units in each of these groups. Distribution control will be done away with. The system of the determination of maximum retail price by the government to be continued.
Second stage (1.4.2002 to 31.3.2005) – The concession to be reduced to reflect the possibility of reasonable improvement in feedstock use efficiencies and reduction in capital related charges.
Third stage (1.4.2005 to 31.3.2006) – It reflects the feasibility of all non-gas based plants of modernizing and switching over to LNG. For plants which will not be able to switch over to LNG as feedstock, only the level of concession that the unit would have been entitled to if it had switched over to LNG would be allowed.
Fourth stage (from 1.4.2006) - The fourth stage, to commence from 1st April, 2006 when the industry was to be decontrolled. The commission recommended a 7 per cent increase in the price of urea every year from 1.4.2001. This way the open market price will reach Rs.6903 per tonne by 1.4.2006, a level at which the industry could be freed from all controls and be expected to compete with imports, with a variable levy to ensure availability of imported urea at the farm gate price of Rs.7000 per tonne. No concession will be necessary from this date onwards for gas based plants. The fuel oil/ LSHS and mixed feed stock plants, existing naphtha plants converting to LNG, as also new plants and substantial additions to existing plants will be entitled to a feed stock differential with that for LNG plants serving as a ceiling.
The ERC also recommended that the farm-gate prices of nitrogenous, phosphatic and potassic fertilisers should be fixed so as to promote balanced fertiliser use. It was suggested that once the price of urea is re-determined every six months, the prices of potassic and phosphatic fertilisers should be suitably adjusted to ensure the desired NPK balance.
Expert Committee onReassessment of Production Capacity (Alagh Committee)
The Department of Fertilizers constituted an “Expert Committee” under the Chairmanship of Dr. Y. K. Alagh, Eminent Economist & Former Union Minister,to reassess the production capacity of Urea manufacturing units. The terms of reference of the committee included (a) the method of reassessment to be adopted, (b) the effective cut off date to be adopted for the purpose of recovery on the method of reassessment, (c) quantification of total amount of unintended benefits accrued to each unit and suggest modalities to recover the amounts thus quantified. The committee submitted its report in March 2001. Based on the recommendations of the committee, the capacities of 22 ammonia-urea plants were reassessed with effect from 1.4.2000 for the purpose of pricing and subsidy.
Cost Price Study of Complex Fertilizers (Tariff Commission)
On the request of the Ministry of Agriculture, the Tariff Commission under the Ministry of Commerce and Industry undertook a ’Cost Price Study of Complex Fertilizers’ to decide the rates of concession of decontrolled complex fertilisers covered under the Concession Scheme. The commission submitted its report in May 2001. The commission recommended the delivered prices of various complex fertilizers for (a) Group I comprising units with gas as feedstock, (b) Group II comprising of the units using predominantly naphtha. The commission also recommended that the Department of Fertilizers may consider carrying out cost-benefit analysis to assess desirability for switching over to imported ammonia by the units under Group II to reduce costs and concessions.
Committee on Cost Price Study of Diammonium Phosphate (Indigenous and Imported) and Muriate of Potash (Imported)
The then Bureau of Industrial Costs & Prices (BICP) had conducted a study during in 1998-99 for DAP/MOP and recommended the normated industry price for indigenous DAP based on the prices of the group of units using imported phosphoric acid and imported ammonia, which constituted 70% of total production of the country. Uniform concession rates for decontrolled fertilisers were announced from 1999-2000 based on the BICP study. Subsequently, two new units, i.e., Oswal Chemicals & Fertilisers and Hindalco Industries Ltd., based on captive phosphoric acid went into production. The share of units using captive phosphoric acid has gone up substantially. Accordingly, a committee was set up under the chairmanship of Dr. V. K. Agnihotri , Chairman, Tariff Commission, Ministry of Commerce & Industry.
Govt of India to undertake cost evaluation in respect of DAP, both indigenous and imported and MOP and work out the delivered prices of the products. The committee submitted its report in February 2003. Based on the recommendations of the committee, the indigenous DAP units have been divided into two groups, i.e., plants based on (i) captive phosphoric acid and (ii) imported phosphoric acid.
Committee on Efficient Energy Levels, etc. for Urea Units (Gokak Committee)
Based on the suggestions made by the ERC, the Department of Fertilizers appointed a Committee on ‘Efficient Energy Levels, etc. for Urea Units’ under the chairmanship of Shri A. V. Gokak, to suggest energy consumption norms for urea units and other related matters, keeping in view to do away with the individual RPS and introduce a Group Concession Scheme. The Committee submitted its report during May 2003.
The committee suggested three stages for its recommendations, viz., Stage I – 1.4.2003 to 31.3.2004, Stage II – 1.4.2004 to 31.3.2006, and Stage III – 1.4.2006 onwards.
The committee recommended to group urea units into six categories, viz., i) pre-’92 gas based plants, ii) post -’92 gas based plants, iii) pre-’92 naphtha based plants, iv) post -’92 naphtha based plants, v) FO/LSHS based plants, vi) mixed energy based plants. In case consumption of alternative feedstock/fuel in a gas based unit exceeds 25%, the classification of the unit should be shifted from gas based to the mixed energy group until the mix again changes warranting its inclusion in the gas based group.
The committee did not recommend any specific efficiency norms for Stage I as urea units did not have any time to adjust to any norms. The committee recommended pre-set energy levels at stage II for each group based on the weighted average consumption figures (excluding outliers) for the period 1999-2000 to 2001-02. For the period beyond stage II, the committee set the energy level bench marking as the lowest weighted average level attained by a urea unit in each group in the 3 year period, i.e. 1999-2000 to 2001-02 be considered as target energy norm beyond stage II for all the units in that group. However, the benefits that accrue to the urea units as a result of higher efficiency due to capital investment shall not be mopped up and the urea units in each group should continue to get the energy figures fixed for the group under stage II.
The committee carried out comparison of energy consumption figures of ammonia and urea plants of three large producers in the world namely, China, USA, and India and found that Indian plants compare favourably with the plants outside India in terms of specific energy consumption. It also observed that the average energy consumption of 25% most efficient Indian ammonia-urea plants is lower than the average of 25% most efficient plants in the world.
More details on Fertiliser Policy - 1944 to 2022 (Highlights)