Fertiliser sector reforms will attract fresh investments (Comment)

The fertiliser sector in India has been through difficult times in recent years. Stagnant production, no fresh investment and poor financial health of the units were accompanied by high level of import, imbalanced use of nutrients and deteriorating soil health. Mounting subsidy bill posed a serious fiscal management problem to the government.

Industry has been pursuing with the government for appropriate reforms to ensure health and growth for both the farm and fertiliser sectors. There was not much progress in the past several years. If at all, there were only some cosmetic changes in the policy, which also proved to be counter-productive.

Now there has been a realisation in the government about the urgent need for significant reforms in the sector. Industry worked with the government to find a solution to the complex problems of the sector. Considering various options, it was recognized that any change in pricing policy should not affect Indian agriculture and farmers adversely.

After much debate and discussions, a nutrient-based subsidy (NBS) scheme emerged as most the realistic and practical step for carrying out reforms in the sector. It is a credit to the government that it quickly notified the scheme for phosphorus ‘P’ and potassium ‘K’ fertilisers effective from April 1, 2010.

Initial reports suggest the new policy is showing positive results. In view of certainty in the policy environment, industry has been able to tie up the supply of raw materials, which are mostly imported, for the entire 2010-11. This will ensure a high-capacity utilisation of domestic industry and give a boost to indigenous production.

Industry and trade have also been able to make arrangements for the import of finished products to meet the anticipated gap in consumption and indigenous production during the year. Expected high levels of indigenous production and long-term arrangements for the purchase of inputs and finished products have ensured reasonable prices for these commodities from the international suppliers. This will definitely help reduce the incidence of subsidy for ‘P’ and ‘K’ fertilisers.

The other important impact of NBS is that it has ensured sufficient supply of fertilisers in the domestic market. There were reports of non-availability of fertilisers in sufficient quantities in some parts of the country during the last few years. The availability of fertilisers in every nook and corner of the country during 2010-11 has already been tied up by the industry.

The concept of NBS is based on individual nutrients. It does not favour or disfavour any particular fertiliser product. Therefore, the products that ensure soil health and higher crop productivity will find favour with farmers. Also, fertiliser products will be customized to meet the needs of the specific crop and region.

There is already a significant progress in this area and a number of units are planning to manufacture and supply various fertiliser products suitable for particular agro-climatic conditions. Such products will have to be included in the basket of NBS scheme.

It will lead to healthy competition within the industry to provide cost-effective products and services to the Indian farmers. These developments should result in higher crop productivity and improve the lot of farming community.

There was also the issue that the NBS scheme should not lead to large increase in the farmers’ price (MRP). This has been taken care of. The small increase in the retail price of some products has been on expected lines as envisaged by the government while notifying the quantum of subsidy on various nutrients.

In fact, there has been a decline in some products due to provision of higher subsidy than provided in old dispensation. Stability in the retail price of various products has been possible due to realistic provision of subsidy and efforts of the industry to procure raw materials and finished products from international markets at prices much lower than those encountered in recent years.

By and large, the detailed parameters for implementation of the policy are in line with the objective of the policy. But there are a few problem areas especially with the dispensation in respect of single super phosphate (SSP). A number of additional conditions have been imposed on the SSP industry, which can affect the production adversely.

For example, for a unit to qualify to obtain subsidy for production in 2010-11, it should have produced 50 percent of its capacity or 40,000 tonnes of the material in the previous year. A number of units had not operated well during 2009-10 for various reasons and would be unable to qualify for subsidy during the current year.

Industry appreciates the government’s concern regarding quality of fertiliser products and will ensure that specified quality is delivered to the farmers. It is hoped that these irritants would be resolved so that SSP, which is a very good product, is made available to the farmers in sufficiently large quantities.

The NBS scheme is also one step forward in the reform process for the sector. Many more steps will have to be taken gradually. Urea, which constitutes about 55 percent of the total fertiliser consumption — about 27 million tonnes per annum — should be brought within the ambit of the NBS scheme.

Further its imports should be decentralised. The basket of products should be expanded to include specialty products like water-soluble fertilisers and customised fertilisers. Such steps will lead towards balanced fertilisation resulting in higher productivity and efficient use of fertilisers.

The ultimate goal of the reform process should be to decontrol the fertiliser sector completely in the medium term. Industry is hopeful of further reforms and will continue to cooperate with the government for taking the process of reforms further. A healthy fertiliser industry will be able to sub-serve Indian agriculture and make farming a viable economic activity.

(30.05.2010- Satish Chander is the director general of The Fertiliser Association of India. He can be reached at dg@faidelhi.org)

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