Fertilizer reform: India must seize this moment to replace its subsidy regime with a high-yield policy

On 7 January, Mint made a case for reforming India’s highly inefficient regime of fertilizer production, pricing and distribution, and for switching over from product subsidization to income support for farmers. This imperative has since been sprung centre-stage by a war in West Asia that has disrupted our imports of urea and its feedstock gas, both of which form large shares of domestic usage and have seen global prices flare up.

The fiscal burden that this imposes on the government should be enough to trigger action. The longer we retain the status quo, the worse this war’s likely impact will be through inflated import bills, which look poised to enlarge rapidly if peace proves elusive.

In general, India privileges the fertilizer industry for allocations of natural gas, but right now, its allotment has been slashed by 30%, while prices have been held firm, as the Centre prioritizes piped natural gas supply to homes for cooking and the compressed kind used by vehicles as a fuel. In recent times, half of India’s natural gas requirement has been met by shipments, the bulk of them from Qatar in its liquefied form, LNG.

Our reliance on this Gulf state for LNG has dropped from above 80% to below 50% over the years as we diversified our sources to include the US, UAE, Oman, Australia and Mozambique. However, Iran’s clamp on the Strait of Hormuz—or attempt to play gatekeeper—has cut off LNG supplies to big buyers like Japan, South Korea and Taiwan, which are now in a scramble for options that has pushed up LNG prices in the global spot market.

Even for those with contracts, pricing is typically linked to oil price indices such as the Japanese Crude Cocktail, and when oil gets dearer, so do these contracted supplies. Should