Surge in urea prices

This letter is in response to news being circulated in media regarding misrepresentation of the facts related to surge in urea prices. I would like to begin with the fallacy that urea prices are being raised arbitrarily. This price adjustment was bound to occur due to the short term policies of the PML-N government coming to an end on the 30th of June 2018.
The structure or breakdown of the price adjustment was based on the following facts: The government in Finance Bill 26-17 reduced the price of Urea from Rs 1790 and capped the price at Rs. 1,400 per bag vide notification of 23 August 2016 under the subsidy scheme as follows: a voluntary reduction of Rs. 50 by the manufactures and Rs 184 as the impact of GST reduction from 17% to 5% and a subsidy of Rs. 156 per bag, offering a total relief of Rs. 390 per bag. Subsequently, the government revised the subsidy scheme through the Finance Bill 2017-18 and reduced the subsidy to Rs. 100 per bag, while keeping the price at Rs. 1,400, thereby implying that the manufacturers bear a further burden of Rs 56 per bag with total contribution of Rs. 106 per bag and Rs 13 Billion.
In the recent past, the reduction of GST on urea from 5% to 2% in the Finance Bill 2018-19 and a withdrawal of the subsidy led to the price increase by Rs. 52 per bag from July 1st 2018. Upon termination of the subsidy on July 1st, the manufacturers were supposed to recover Rs. 106 plus pass on the impact of withdrawal of subsidy and GST adjustment (Rs.52). Therefore, the minimum price increase was to be effected by Rs. 158 per bag. Keeping in mind the impact of inflation and the Dollar Rupee parity among other costs, the prices were bound to rise higher than the present adjustment of Rs 130 or so per bag. In the light of these calculations, it is clear that the news of price increase is exaggerated and mischievous. It may also be noted that price of Urea in the international market is hovering around Rs 2300 per bag.
MUHAMMAD SAGHEER
Islamabad

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