Fertilising trouble

The fertiliser industry is on the brink of sickness, through no fault of its own. While pervasive controls have stifled the industry, the mismanagement of subsidy payments by the government has pushed it into a financial crisis. The net result is stagnation in domestic fertiliser production and widening of the demand-supply gulf, creating a huge dependence on imports. Moreover, fertiliser shortages have begun to surface in several pockets. If the situation is not remedied soon, several fertiliser units could shut down and have an adverse effect on agricultural production.

Official apathy towards this sector is clear from the fact that, for the fourth year in a row, the Union Budget has not set apart adequate funds for reimbursement of a fertiliser subsidy that the industry has already disbursed to the farmers on the government's behalf. As a consequence, the outstanding subsidy claims of the industry were reckoned to have mounted to a whopping Rs 15,000 crore by March 31. What is worse, the numbers are bound to swell further during the current financial year as the full payments that are due have once again not been budgeted for. What this will translate into is a liquidity crunch for many a fertiliser plant, which may then be forced to stop production as a result. Worse still, this sector has become anathema for investors, and no capacity addition has taken place for over a decade. If the plants operating today begin shutting down, the repercussions would be disastrous. As it is, the gap between fertiliser demand and indigenous availability, which was negligible in 2000-01, grew to nearly 2 million tonnes by 2005-06 and to a massive 5 million tonnes in the last financial year. What is disquieting is that this is projected to widen further to nearly 6 million tonnes in the current year, and perhaps to as much as 16 million tonnes by the end of the 11th five-year Plan, in 2011-12.

Since Indian farmers will continue to use more fertiliser, it should be obvious that imports of such magnitude will begin to impact world markets, and therefore the prices of fertiliser. This is a hugely expensive import dependency that is being created. Already, the growing Indian imports have caused urea prices to firm up to over $330 a tonne from much below the $300 mark last year. The landed cost of imported urea, thus, works out to over Rs 14,000 a tonne, despite firming up of the rupee, which is high compared to the weighted average cost of locally manufactured urea, at around Rs 10,500 a tonne. In fact, domestic production costs can be slashed if adequate natural gas is made available to the industry at reasonable charges. But that is unlikely to happen. Even today, gas-based urea plants are not getting adequate supplies. The gas shortage may worsen as more plants are switching to gas from other feedstock, under the government's new feedstock policy. Indeed, the gas crunch may become another impediment in the way of fertiliser production.

Ordinarily, such a scenario should make the authorities sit up and review their policies. But the fertiliser ministry seems unperturbed. A number of expert committees have been appointed in the recent past to go into the woes of the fertiliser sector. Some of these panels have gone specifically into the policies governing the pricing and distribution of fertilisers, apart from mooting an overall long-term fertiliser policy. But their reports still await attention.