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The Department of fertilizer is favourably considering the proposal for exclusive allocation of urea for the chemical industry.
The proposal as envisaged by the department of chemicals and petrochemicals entail earmarking certain portion of urea manufactured by domestic fertilizer companies for the use of chemical industry.
The fertilizer ministry proposes to float cabinet on this to the group of ministers soon.
Separate allocation for urea is needed for the chemical industry as it requires technical grade urea for various manufacturing various products. However they have to pay imported technical grade urea is costing around Rs 32 per kg.
On the other hand, the domestic manufacturers are selling urea at Rs 5.36 per kg to the farmers and the difference between the imported price and the selling price to farmers is subsidised by the government. Fertiliser is a controlled commodity and movement of urea in domestic market regulated by the government.
According to sources close to the development, it is very difficult to monitor the consumption of urea from domestic industry players as often it leads to duty diversion and smuggling out of the country, according to industry view. According to sources, delay in receiving subsidy, many of the Indian companies resort to alternate avenues for cost recovery.
In such a scenario, department of chemical is of the view that if certain portion of the urea manufactured by the domestic fertiliser companies is allocated exclusively for chemical companies, it will be a win win for both. While the fertiliser companies get to recover cost plus margin, and the chemical companies gets urea relatively cheaper than the imported variety which is directly linked to the currency movements.
As per the proposal, it will require the fertiliser ministry to allow domestic fertiliser companies earmark certain quantity of urea for the chemical industries. The shortfall can be imported and sold to the farmers through its canalysing agent MMTC where monitoring will not be a problem.
The technical grade urea consumption of the Indian chemical industry is currently hovering around 1.5 lakh metric tonne per annum as against 60,000 MT pa in 2008-09.
With growing impetus on the chemical industry to reorient towards manufacturing more of dyes and specialty chemicals meant for the export market, need for cheaper raw material is a constraint, said officials sources. According to National Chemical Policy, with an overall growth rate of 15% p.a. , the chemical industry is expected to reach turnover of $290 billion by 2017 on a conservative scale.
On the other hand, India faces significant challenges in terms of feedstock availability and prices. Organic chemicals based on ethylene/ propylene, xylene, naphthalene and their derivatives are imported in large quantities due to non-availability of cost competitive feedstock in the domestic market.
Apart from large imports of methanol which amounts to almost 70-80% of the domestic consumption, India also imports significant volumes of sulphur, urea, ammonia, phosphorous and potash, which are key raw materials for various downstream sectors of the chemical industry.
