- Urea Subsidy Challenges:
- Stagnation of domestic urea production (no new capacity in 17 years).
- Dependence on costly imported gas for production.
- Government controls production, distribution, and pricing.
- Leads to distortions, leakage, and less availability for small farmers.
- Under-pricing leads to inefficient consumption.
- Diversion of subsidized urea to neighboring countries or chemical companies.
- General Challenges:
- Earlier Retention Pricing Scheme motivated companies to inflate costs.
- No motivation for manufacturers to reduce costs or become efficient.
- Farmers derive signals from government policies, not market demand.
- This affects diversification and environmentally sustainable production.