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July 11, 2012India gives billions of dollars in misdirected subsidies to the fuel and fertilizer sectors which goes into the pockets of middlemen and profiteers. It is a known fact, that India’s fuel subsidies has engendered a huge mafia which makes billions of dollars each year. What is less known is that the fertilizer subsidy too, has grown its own pet corruption industry with subsidized urea being used by textile and plywood resin manufacturers. India gives a whopping 50-75% subsidy to urea which is used in agriculture as a fertilizer. However this huge discount on the actual cost has led to its leakage and bizarre usage in industry. Misdirected incentives and subsidies are the root cause of this wastage. The Indian Government instead of changing the structure of the delivery mechanism is trying to stop leakage through enforcement which has always failed. Instead of trying to focus the subsidy through targeted cash transfers, it continues to fuel wastage through ham handed broad subsidies. Note India’s fertilizer subsidy is distorted in other ways, with some types of fertilizers like urea getting subsidies, while others like DAP not getting the government largesse. This results in overuse of urea and under-use of DAP leading to soil degradation.
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India’s Misguided Fossil Fuel Subsidy root cause of Mafia Growth
India’s Fossil Fuel Subsidies have led to a massive growth of the petrol and diesel mafia in the country. India gives subsidies on diesel, kerosene and cooking gas through its state owned petro/gas companies like BPCL, IOCL, HPCL etc. These subsidies have been given for a long time and have led to the growth of a parallel black economy in these products. They not only lead to capital misallocation but also to the massive illegal profits for a few. It is a well known fact that all petroleum pump owners adulterate petroleum (which power most of the cars) with subsidized diesel and kerosene. This massive racket earns millions of dollars (if not billions) for a network of company officials, pump owners, government bureaucrats and politicians. The mafia is so strong and powerful that it thinks nothing of burning alive a senior police official. The racketeers are so rich and well connected that despite common knowledge nothing gets done about it.
Irked by misuse of subsidy, the Centre has directed state governments to take firm steps to curb illegal diversion of fertilizers like urea to non-farm sectors. It is estimated that about 2 million tonnes of soil nutrients, especially urea, is being smuggled out for use by plywood resin manufacturers, textiles and other industries every year.
The official said, “We have received complaints of such incidents rampant in Gujarat, Maharashtra and Haryana. We have asked states to take serious action as central subsidy on fertilizers is being misused.” Urea, whose price is still controlled by the government, is selling at a subsidized rate of Rs 5,310 per tonne as against the production cost of Rs 13,000-23,000 per tonne.