Fertiliser: Uneasy feelings linger

To pass the benefits of lower interest regime, the SBI has announced an interest rate band of 2% above and below the PLR for secured advances.

Issue prices of fertilisers to be raised by Rs 12 per bag for urea, Rs 10 for DAP and MOP per bag. The prices of complex fertilisers to be suitably modified.

Excise duty on LNG exempted.

Doubling agricultural credit in three years, accelerating the completion of irrigation projects and investing in rural infrastructure.

Under the Bharat Nirman initiative, by 2009, to bring an additional one crore hectares under assured irrigation.

About 1.2 m hectares have been covered under micro-irrigation so far, and the plan is to increase the coverage to 3 m hectares by the end of the Tenth Plan and to 14 m hectares by the end of the Eleventh Plan. Accordingly, additional Rs 4 bn for promoting micro-irrigation in 2005-06 is provided.

Fertiliser subsidy bill estimated for 2005-06 at Rs 162.5 bn (from Rs 156.6 bn as per the revised estimate for 2004-05).

Low per-capita consumption: India consumes only 98 kgs of nutrients per hectare of arable land as compared to 254 kgs in China, 301 kgs in Japan and 407 kgs in Korea. Several developing nations, including Pakistan and Bangladesh, have higher consumption per hectare at 135 kgs and 156 kgs respectively. Therefore, there is a lot of scope for increasing this consumption to higher levels, given the benefits that fertilisers bring to soil conditions, the quality of crop output and yields.

Increased credit availability: Though credit availability to the agriculture sector has been an issue, various measures have been taken to increase the availability of credit at a cheap rate. The emergence of commodity exchanges and plans on the crop insurance side are steps in the right direction, which are expected to provide a fillip to the agriculture sector. Since fertiliser demand is a function of awareness of usage

Energy efficiency: The Indian fertiliser industry is fairly energy efficient as compared to its international counterparts in China and the US. To put it in numbers, the energy consumption for urea is 6.10 Gcal/MT (giga-calories per metric tonne) in India, as compared to 6.29 Gcal/MT in China, for gas-based feedstock plants. Even for naphtha-based feedstock plants, the energy consumption in India is 6.43 Gcal/MT, as compared to 6.76 Gcal/MT in China. Therefore, in terms of efficiency and conservation of energy, Indian plants are as good as, if not better than, their international counterparts.

Critical to food security: The impetus to provide a boost to the fertiliser sector stems from the fact that the country needs to have food security. Given the rise in population and falling area under cultivation, this is likely to be achieved by improving productivity. Therefore, policy measures are likely to be accelerated on the fertiliser side.

Increased acreage under irrigation: In order to reduce dependence on the monsoons, the Bharat Nirman initiative envisages an additional 10 m hectares to be brought under assured irrigation by 2009. This will certainly benefit the fertiliser sector, as increased usage becomes imperative in order to improve yields.

Political intervention: Since the farmer section is a large vote bank, both at the center and at the state level, there has been a hesitancy to take hard decisions. The fact that food security is such an important goal and the possible volatility in fertiliser prices if they are brought under decontrol, resulting in lower usage, has also led to the political control of the sector. This has been affecting the growth of the sector.

Unclear policy environment: The sector is a highly controlled one (cap on capacity, prices, selling markets and return generation). The lack of incentive to cost-efficient producers as compared to incompetent players has been affecting not only the industry fortunes but also the government's finances. In fact, the fertiliser bill for 2005-06 had been estimated at Rs 162.5 bn. Till 2006, the policy environment is likely to remain fluid.

Over dependence on the monsoons: The fertiliser industry, being dependent on agricultural growth, is therefore, very dependent on the monsoons. Agriculture is still far too dependent on this one variable, with not enough land under irrigation. Therefore, the fertiliser industry is not favourably placed on this count.

Gas de-regulation: Natural gas is one of the most cost-efficient sources of energy for the fertiliser industry. But since gas prices are controlled in India, fertiliser manufacturers have been benefiting. Considering the imminent deregulation in the gas sector, there could be a sharp rise in input costs. The availability of gas at competitive rates is also an issue that needs to be addressed with high priority.