Fertilisers: Pre-budget sector analysis

Mr. P. K. Ghose, Tata Chemicals Limited:

The Pricing Policy with regard to Di Ammonium Phosphate (DAP) fertilisers needs to be modified appropriately and periodically taking into consideration the actual present cost of raw materials and freight rates. An anti dumping/ safeguard duty also needs to be imposed on imported DAP so as to prevent dumping of stocks in India.

Also, as a step towards reducing subsidy on fertilisers, cost of inputs and manufacture need to be reduced. This can be achieved by granting duty exemptions on plant, machinery and equipment for all new and expansion facilities proposed to be set up, including LNG units since these supply LNG to critical industries of power and fertilisers.

Phased programme of complete de-control of urea by April 2006

The unit specific retention pricing scheme to be replaced by a group concession scheme with effect from April 2001

The rate of concession on urea units based on naphtha/fuel oil/LSHS will be linked to international prices of these feed stocks with effect from April 2001.

A new corporation for Agricultural Insurance to be promoted by the existing public sector general insurance companies.

Steps to reduce large food grain stock and launching of the food for work programme.

Modest increase in the issue price of urea, DAP, MOP by about 5%. Subsidy for SSP reduced by Rs 50 per tonne.

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.

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.

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 the commodity exchange and plans on the crop insurance side are a step in the right direction to provide a fillip to the agriculture sector. Since fertiliser demand is a function of awareness of usage and availability of organised credit, this is expected to benefit the industry.

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.

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. This has been affecting the growth of the fertiliser sector.

Unclear policy environment: The sector is a highly controlled one (cap of 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. Till 2006, policy environment is likely to remain fluid.

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