Run-up to the Budget: Fertiliser. Rationalised urea policy needed

A roadmap for a comprehensive urea policy with deregulated pricing and adequate budgetary provisions are the key expectations of the fertiliser industry from the upcoming Budget.

Urea price was kept unchanged at ₹4,830 a tonne between 2002 and 2010 and subsequently raised marginally to ₹5,310 and ₹5,360 ($86) in 2010 and 2012, respectively.

Under active consideration is deregulation of urea by bringing it under the Nutrient-Based Subsidy (NBS) scheme where per kg subsidy is fixed by taking international prices and other factors into account. The deregulation plan envisioning a gradual increase in urea prices over the next three years is expected to be announced soon.

Fertiliser Ministry officials have raised concerns over the last year about imbalanced fertiliser usage with urea application vastly greater than phosphate/potassic fertilisers.

“All other fertilisers except urea have been brought under the NBS policy and there is a need to bring urea under it to help correct NPK use ratio that has deteriorated badly due to excessive usage of cheaper urea. Deregulation is the ultimate desirable solution, it will enable market forces to determine price,” said Ajay Shriram, Chairman & Managing Director, DCM Shriram Ltd. Shriram, however, added decontrol must be gradual and in a manner that it does not lead to poor farm productivity and adverse impact of agri-incomes.

Urea consumption rose 57 per cent between 2000-01 and 2012-13, from 19.1 million tonnes (mt) to 30.16 mt. Subsidy paid by the government to urea manufacturers as the difference between the cost of production and retail price accounts for more than 60 per cent of the nearly ₹73,000 crore annual subsidy bill.

“We expect a rationalisation of the NBS scheme to promote balanced use of NPK fertilisers. This would not only reduce the indiscriminate usage of urea, but would also lead to sustainable input application leading to higher agricultural productivity, reduced soil fatigue and greater economic benefits to the farmers,” said Rajat Wahi, Partner, Management Consulting, KPMG India.

“In the absence of a road map, half the industry is sick with minimal investments in the sector,” said Satish Chander, Director General, Fertiliser Association of India (FAI).

Fertiliser subsidy dues will touch ₹40,000 crore by March of which ₹30,000 crore is payable to domestic urea producers, who have not received on-account payments since August.

FAI estimates required subsidy allocation to be ₹1,10,000 crore for fiscal 2015-16. Industry chambers are pushing for a cut in the import duty of raw materials used for P&K fertilisers as well as the 5 per cent customs duty on LNG and spares.

“For DAP to be made in India, the industry pays the same thing to import rock phosphate and sulphur or intermediates as it does for the finished product.

“This puts it at a disadvantageous position to ‘Make in India’ and a reduction of duty on raw material is required,” said Chander.