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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
Fertilisers
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Excise Duty
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Customs Duty
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Straight Nitrogenous fertilisers
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(%)
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(%)
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Urea
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16
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44.04 (canalised)
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Calcium Ammonium Nitrate
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16
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44.04 (free)
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Ammonium Sulphate
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16
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5.00(free)
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Straight Phosphatic Fertilisers
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Single Superphosphate (SSP)
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16
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44.04(free)
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Potassic & NP/NPK Complex Fertilisers
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Muriate of Potash (MOP)
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16
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5.00(free)
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Di – Ammonium Phosphate (DAP)
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16
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5.00(free)
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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.
Previous budget (FY 2000-01) announcements
- 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.
Expectations from budget
- 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.
Key Players
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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