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Received July 2002. Revision accepted April 2003.
I
INTRODUCTION
In the emerging trade order, free from quantitative restrictions (QRs), domestic urea industry is in disarray; whereas, domestic industry accounts for more than 90 per cent of urea consumed in the country. The formidable level of self-sufficiency in urea has been brought about through an inward looking approach of the Government in the 1970s, when self-reliance in essential commodities like urea was considered a precondition for self-sufficiency in food. This approach has, however, made domestic urea industry cost-heterogeneous and warrants Government interventions for a uniform price in the country. A neo-protectionist measure in the form of 'sensitive commodities' has been devised following dismantling of QRs, imports of these commodities are effectively canalised through the State Trading Enterprises. In the long run, there is a least chance of continuance of this measure.1
In a liberalising world, the criterion of cost-efficiency dominates over the criterion of self-sufficiency. The existing dispensation for urea, however, prioritises the latter objective. Nevertheless, urea is one of the key inputs for agriculture and there is a possibility of cost inefficiency being incorporated in the domestic production system; whereas, cost and quality are supposed to be the determinants of trade flow in the new trade order. In this situation, how to go about liberalising import of urea is an important question to ponder.
Though issues related to opening up of urea are often debated at different forums, there is dearth of research papers based on proper analysis of data. The study done by Gulati and Narayanan (2000) is worth mentioning in this regard. They suggest import liberalisation with differential concessions so as to benefit from the low world urea prices. They further argue that by not opening the external market, huge fertiliser subsidy is, in fact, going to domestic urea industry rather than to the farmers. There is nothing new in this proposition; this has, in fact, been the case for phosphatic fertilisers wherein both domestic and external producers exist. Import of urea, however, cannot be opened up without checks, as domestic industry is costheterogeneous. In this perspective liberalising imports of urea requires calibrated steps commensurate with the domestic policy. The present study is an effort in similar direction. It starts with the...