| This thesis conducts an industrial restructuring and pricing policy analysis for the Indian fertilizer sector. The industrial restructuring analysis evaluates the impact of the government's industrial policies for the fertilizer sector--ex-factory pricing, control over imports, regulation of technology choice, and management of public enterprises--vis-a-vis the impact of liberalizing these policies. In addition, the thesis develops a framework for analyzing fertilizer pricing policy, focussing on price stabilization and subsidy. The analysis shows that price intervention is not necessarily Pareto-inferior to non-intervention in all cases. However, a "strong theorem" demonstrating the Pareto-superiority of price stabilization or fertilizer price subsidies clearly does not hold. Whether price stabilization or subsidy is desirable depends on the impact of instability and level of prices as opposed to the resource costs of intervention. The review of the literature suggests that some significant costs of price instability have not been incorporated--in particular, risk aversion to uncertain price fluctuations (with factors additional to the usual income risk aversion, given prices), with microeconomic costs consisting of transactions costs and psychic disutility, and macroeconomic impact on investment, growth and income distribution. In addition, particularly adverse movements in prices, in the face of imperfect capital and insurance markets, can lead to a 'bankruptcy effect'. In the Indian fertilizer sector, the likely costs on account of instability and high peaks/low troughs of international prices suggest that there are significant potential benefits to government intervention; the desirability of intervention, however, depends on whether it can actually offset the costs. Finally, the results of pooled, statewise cross-sectional, time-series regression model of the Indian agricultural sector show that there is considerable disequilibrium in fertilizer use, and that based on estimated elasticities, a fertilizer subsidy is socially profitable. |
