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Run up to the Budget: Fertiliser sector

Background

• Key Inputs
  Rock Phosphates, Phosphoric Acid, Natural Gas, Naphtha, Sulphur, Ammonia, Coal.
  
  
• Duty Structure

Based on the usage of fetilisers, the industry is divided as follows:

• Straight Nitrogenous Fertilisers (N)
• Straight Phosphatic Fertilisers (P)
• Potassic (K) & NP/NPK Complex Fertilisers
  
  

• Urea accounts for 85% of the total N fertilisers & it is the only fertiliser, which is controlled by Retention Pricing cum Subsidy Scheme (RPS). Salient features of RPS are:
  • Fixation of Farmgate Price (FP) by the Government, which is Rs 4,600 per ton w.e.f. 29/02/2000
  • Fixation of Retention Price (RP) for manufacturers, which assures 12% post tax returns on net worth
  • Grant of subsidy to manufacturers as a difference between FP & RP
    
    
• During FY 2000-01, growth registered in the production of Nitrogenous Fertilisers was 3.8% and that of Phosphatic Fertilisers was 7%.
  
  
• Consumption ratio of N, P & K stood at 7: 3:1 during FY 2000-01 as against 9: 3: 1 during FY1999. Though the ratio has shown an improvement over previous year it is still far from the ideal ratio of 4:2:1. The adverse ratio is on account of the fact that the cost of urea is much lower when compared to other fertilisers.
  
  
• At present, imports of urea are cannalised through Mineral and Metal Trading Corporation (MMTC) and State Trading Corporation (STC), which are protecting Indian manufacturers from international competition. However, as per WTO agreement, Quantitative Restrictions (QRs) will be removed from 01/04/01, which will increase the competition for Indian manufacturers.

• Price of urea was raised by 15% to Rs 4,600 per ton.

• Rate of concession on decontrolled fertilisers was reduced and to smoothen the impact, MRP of DAP & MOP was raised by 7% and 15% respectively.

• The Finance Minister declared his intention of phasing out the Retention Pricing Scheme, in continuation of which a background paper on long term policy on fertilisers was released in Jul 00 giving a detailed plan of decontrol of the sector in three phases over a period of seven years.

• Pursuant to the WTO agreement, Quantitative Restrictions will be removed from 01/04/01. Gokak Committee, which was set up to study the implications of WTO agreements, has suggested hiking import tariff on urea to 145% to safeguard the viability of Indian fertiliser companies. The farmer community, however, has not welcomed this suggestion, voicing its concern that this would restrain them from enjoying the benefit of low cost imports.

• Government has decided to decontrol the industry by 2007 and allot infrastructure status to it. Measures to this effect are expected in the fertiliser policy to be announced in the budget.

• The policy paper released by Government has recommended adoption of coal-based technology in order to reduce the imports of feedstock. This is likely to be announced in this budget.

• Measures are expected to pave the way for scraping of the widely criticised RPS.

• Urea prices are likely to be increased in order to reduce the burden of subsidies on Government treasury. The distribution control on urea is also expected to be removed.

• Government is likely to take some steps to encourage joint ventures abroad as there has been heavy dependence on imports of certain fertilisers like MOP.

Nitrogenous Fertilisers: Fertiliser Corporation of India, Indo Gulf Corporation, IFFCO, Chambal Fertilisers & Chemicals, Nagarjuna Fertilisers, SPIC.

Phosphatic Fertilisers: Coromandel Fertilisers, EID Parry, Fertilisers & Chemicals Travancore, Godavari Fertilisers & Chemicals, IFFCO, SPIC, Zuari Agro Chemicals.

Rediff-Dun & Bradstreet Budget Impact Analysis
Budget 2001

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