Fertiliser industry left high and dry

Deepsikha Shikarwar and Sidharth Kanungo in New Delhi

Hit hard by one of the century's severest droughts in 2002 and the government's failure to announce a lasting pricing policy, the Rs 35,000 crore (Rs 350 billion) fertiliser industry cried for relief including duty protection against cheap imports even as it kept taking the flak for mounting subsidies.

Burdened with the burgeoning fertiliser subsidy of over Rs 14,000 crore (Rs 140 billion), a worried government continued to grope fervently for a mechanism to contain the outgo, while an anxious industry pleaded for seven per cent urea price hike annually for the next 4-5 years to phase out subsidy saying the industry was the real beneficiary of the mechanism.

For the distressed farmers, it was yet another year of helplessness as they confronted a truant south-west monsoon.

With kharif crop hopes evaporating, fertiliser sales dried up sharply. The year saw preparations to dismantle the Retention Pricing Scheme for subsidy to urea units under a new policy regime.

As Fertiliser Minister S S Dhindsa puts it, "Several aberrations have crept into the scheme.”

While readying itself to survive outside the protected RPS environment, the domestic industry also apprehends dumping in the wake of removal of quantitative restrictions on import of fertilisers and wants "reasonable" safeguards.

Apex manufacturers' body, Fertiliser Association of India wants up to 35 per cent import duty on urea under free price mechanism saying it was in tune with World Trade Organisation regime.

It says though DAP has a bound rate of 5 per cent, urea has none.

The much-trumpeted long-term fertiliser policy to deal with pricing and subsidy failed to see the light of the day despite three years of deliberations.

Though the Group of Ministers has submitted its recommendations on the proposed policy, to be largely based on the report of the Expenditure Reforms Commission, the government is yet to come out with the final document.

Hopefully, the long-term policy would be in place in the New Year to remove existing uncertainties facing the highly complex agro-nutrient sector in the country.

During the year, the government announced policy changes under the 7th and 8th pricing periods on the basis of the recommendations made by the GoM headed by Planning Commission Deputy Chairman K C Pant, which the industry termed as a "set back" for urea manufacturers.

Several urea producers were said to have been adversely affected by the revised policy parameters, particularly because of their implementation with retrospective effect.

Complaining of serious liquidity problems for many units, industry says about 23 of the 32 urea units would be affected by the group concession scheme recommended by the GoM under the proposed long term policy.

In their opinion, GoM's proposals have not addressed some key issues like 7 per cent urea price increase per annum, full removal of controls on distribution, switch over of all non-gas based plants to gas or LNG and removal of control on selling price.

As consumption of agro-nutrients declined substantially due to drought conditions, their sales during the kharif season fell accordingly. Sale of urea dropped by six per cent, while that of DAP by 20 per cent and MOP by 15 per cent compared to kharif 2001.

During the current rabi season too, fertiliser consumption is unlikely to register substantial rise.

-- PTI

2002: The Year That Was