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BW Businessworld

Fertilizer Industry Is Eyeing For Free Trade Practice: KS Raju Chairman FAI

CARE ratings have released their second-quarter estimates for fertilizer industry with a positive comeback due to Rabi sowing and domestic dependency. Fertilizer Association of India is also set to organize its annual seminar on ‘Fertilizer & Farm Income’ topic. It shows a deep impact of union government’s policies on this industry.

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Amid the CARE ratings by India Brand Equity Foundation for the second quarter of FY 2017-18, it can be clearly noticed that the latest policies by the government had shown their deep impact on this industry. Ratings clearly suggest that overall production will get lowered compared to same period last year. Rabi sowing has given pace to industry once again, while Fertilizer Association of India is all set to organize its annual three-day seminar, this year the theme is in tune with union government’s vision, Fertilizers & Farm Income’.

According to the industry champion Fertilizer Association of India, the gap of export to that  of import was highest in 2008-09 but their pain appears clear when the co-chairman of FAI says that, ‘The government is not giving the subsidy the way it should give!’ In another statement, FAI has said that production costs are less than imported Urea but the government still buy urea from outside.      

India brand equity foundation (IBEF) says ‘Overall the production of fertilizers as compared to the corresponding period in the previous year has been down as most of the companies which had a stockpile of inventory have been liquidating it. On a quarter on quarter (q-o-q) basis, overall fertilizer production in the country has increased by 12.4 per cent. We could attribute this increase due to the approach of the Rabi sowing season which starts from October onwards’. 

Urea production (which constitutes about 56 per cent of the overall fertilizer production) is up by seven per cent on a q-o-q basis and the imports are down by 12 per cent on a q-o-q basis as well. Urea imports are also down by 24.7 per cent as compared to the imports of urea during Q2- FY17. This is a good sign as India aims to completely stop urea imports by 2022.

Influence of Government Policies

Direct Benefit Transfer: The Government has now introduced direct benefit transfer (DBT) for fertiliser subsidies in seven small states and union territories including Delhi. Additionally, 12 big states including Punjab, Madhya Pradesh and Andhra Pradesh are ready for the phase II launch in the next quarter and the target is to cover the entire country by January 2018. More than 60% of deployment of the Point of Sale (PoS) machines been completed so far.  A statement from Fai clearly states that Rs one thousand Crore is still pending from DBT from the government to concerned agencies in these pilot districts. 

Additional Subsidy Disbursement: To reduce the burden of fertiliser subsidy backlogs during 2016-17, a special banking arrangement (SBA) of Rs 10,000 crore has been approved by the Cabinet Committee on Economic Affairs (CCEA).  The CCEA has also approved that, in future, the Department of Fertilisers would avail the SBA with the concurrence of the Department of Expenditure. The government is making available urea and 21 grades of P&K (phosphate and potassium) fertilisers to farmers at subsidised prices through fertiliser manufacturers and importers. The government interest liability is limited to the G-Secs rate.

In a press conference prior to the seminar by fertilizer association of India (FAI), it was stated that Rs 70 thousand crore subsidies that is believed to be given by the government to the farmers by various means should be transparent and prompt. Criticising the DBT by the government as only partial benefit transfer to farmers’, FAI has shown interest to keep subsidies with them so that it can be passed on to various beneficiaries.

BW Businessworld asked  FAI if they have anything to say about PM’s vision statement of traditional agriculture (Paramparagat Krishi) they certainly had no answer besides an expectation of a better and free market to trade for the fertilizer industry. It is also a noticeable fact that India which does not have a detailed policy of subsidies on micronutrients such as Zinc and Iron has no strong representation for micronutrients on government. 

Speaking with BW Businessworld, KS Raju chairman of FAI has revealed that fertilizer industry is under a threat and various macroeconomic factors are responsible for this stage, where it appears profitable from outside but the reality is completely different from within.