Price elasticity of fertilizer demand in India: A review

Abstract

The goverment of India has tried to assure a reasonable return to fertilizer industry so that indigenous production can keep pace with the projected increase in demand of fertilizers. At the same time the farmer have also been assured of a reasonable price so that fertilizer use can be encouraged. In the context of reducing budgetary deficit, the increase in subsidy level of fertilizers has been a matter of concern. The impact of 30 percent increase in the price of the fertilizers during 1991-92 budget, had a differential impact on the over all cost of cultivation ranging between 0.1 percent in case of paddy in Assam to highest of 5.25 in case of wheat in West Bengal, depending on the cropping pattern and level of use of fertlizers. This paper is designed to review various estimates of fertilizer price elasticities and their suitability for assessing the impact of the price rise of the fertilizers on their consumption. Before various estimates are reviewed, the fertilizers use scenario in India in briefly review, the fertilizers use scenario in India is briefly reviewed to provide the backdrop for examining the suitability and acceptability of the estimates of fertilizer price elasticity. At the end of the paper, the further areas of research have been delineated.