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Run-up to the Budget: Fertilisers

State of the industry (2000-01)

• Consumption of fertilisers is expected to decline due to low rainfall/drought in several parts of the country, such as Gujarat, Madhya Pradesh and Maharashtra; and floods in Bihar and West Bengal. The decline in consumption is expected to be higher in the case of phosphatic fertilisers, such as DAP and SSP.
• Domestic supply of phosphatic fertilisers is expected to increase significantly due to the commissioning of new DAP capacities (Oswal Chemicals & Fertilisers Ltd. and Indo Gulf Corporation Ltd.). In the case of urea, a provisional reassessment of capacities was done by the Government, and a ceiling of 100 per cent of reassessed capacity was imposed on production.
• In the Union Budget 2000-01, the selling price of urea was increased by 15 per cent, to Rs 4,600 per tonne; and that of DAP by 7.2 per cent, to Rs 8,900 per tonne.
• During the April-September 2000 period, margins of domestic DAP producers increased, in spite of a decline in the average final subsidy (as compared with the average final subsidy in 1999-2000). Margins increased due to an increase in the selling price and a decline in the cost of raw material. Margins on imported DAP declined significantly, due to a significant decline in the subsidy on imported DAP.

• Quantitative restriction on urea imports are expected to be removed, due to the obligation under the WTO. However, the bound rate of import duty on urea is yet to be decided.
• A fertiliser policy for the rationalisation of subsidy and prices is expected.

• Uniform policy regime: The Expenditure Reforms Commission (ERC), which submitted a report to the Government in September 2000, has suggested a uniform pricing regime for urea producers from 2001-02. The fertiliser industry wants the uniform pricing regime to be effective from 2003-04.
• High import duty on urea: The fertiliser industry has asked for a high import duty on urea (Urea imports are only allowed by the Government, through canalising agencies, such as MMTC, STC and IPL. In 2000-01, the customs duty on the imports of urea was 5 per cent).
• Withdrawal of the duty on imports: The fertiliser industry has asked for a withdrawal of the duty on imports of plant and machinery for setting up new grass-root plants as well as for the revamp/modernisation of existing plants.
• Exemption from customs duty: The fertiliser industry has asked for an exemption from the customs duty on LNG for fertiliser production.
• Withdrawal of customs duty: The industry has asked for the withdrawal of the customs duty on rock phosphate and sulphur.

Not traded:
DAP: Di-Ammonium Phosphate
Farmgate price from February 29, 2000

Notes:
1) For 2000-01, the landed cost and customs duty include the SACD of 4 per cent, effective since 1999-2000. In 1999-2000, the SACD was applicable only for non-traders, and hence, has not been included in the customs duty.
2) Domestic prices & landed cost are Rs/tonne.
3) International prices are $/tonne.
4) Customs duty on imports of capital goods for fertiliser projects has been increased to 5 per cent in 1999-2000. CVD has been increased from 10 per cent in 1999-2000 to 16 per cent in 2000-01.

Compiled by CRIS INFAC

Disclaimer: CRISIL has taken due care and caution in compiling this report. Information has been obtained by CRISIL from sources which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of its web site.

Rediff-CRISIL Budget Impact Analysis

Budget 2001

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