Fixed costs include expenses incurred by a plant irrespective of production levels, such as wages, maintenance and other overheads and form the subsidy payout by the government.
The government sells urea to farmers at a regulated price, while manufacturers are compensated under the fertiliser subsidy framework, which includes costs such as fixed costs and variable costs like gas prices.
The currently used fixed-cost formula for urea plants was determined in 2002-03, with the government providing additional compensation in 2014.
“The cost of production has risen significantly in the last few years, and the urea selling price has remained unchanged,” said a person aware of the matter, adding that the industry has made several representations to the government in this regard.
The government is working on striking a balance between keeping urea affordable for farmers and limiting how much it has to spend on fertiliser subsidies, according to the person quoted above.
The sub-committee has been set up as an earlier review of the fixed cost done by the Chief Adviser Cost (CAC) suggested that the fixed cost payout could decline for several of India’s 27 urea manufacturing units, which was opposed by the industry, said the person cited earlier.
The proposed sub-committee will undertake a fresh assessment using cost data for 2022-23, 2023-24 and 2024-25.