The government move is significant in the backdrop of the ever increasing prices of imported fertilisers and escalating subsidy burden, which is expected to touch Rs 95,013 crore in 2008-09 as against Rs 40,338 crore in 2007-08.
The subsidy burden has been growing multifold as the government, despite sharp increase in international prices of fertilisers over the last four years, effected no increase in the selling price of fertilisers for farmers.
While the cost of urea remained at Rs 4,830 per tonne, the estimated delivered cost was Rs 18,910 per tonne. Thus, the subsidy component on each tonne of urea is Rs 14,080.
Urea is the most consumed fertiliser in the country, followed by di-ammonium phosphate (DAP) and other complex fertilisers. According to government's estimates, India had imported 6.9 million tonne (mt) of urea in 2007-08, as against 4.7 mt in 2006-07.
The new policy is expected to announce additional incentives for attracting investments in existing urea units for production beyond the existing capacity. For the new units, the government may even provide fiscal sops, it is learnt.
The government has been undertaking a series of measures to ease the fertiliser subsidy burden and increase the availability of fertilisers in the country. The nutrient-based subsidy policy and pricing policies on phosphatic and potassic fertilisers were all directed at promoting the use of wide ranging fertilisers, thereby reducing the burden on urea.
While these were all short-term measures to ensure availability, the investment policy is looked as a long-term solution to the fertiliser problem.
According to highly placed sources, the investment policy, currently under the scrutiny of finance ministry and the Planning Commission, is likely to be ready for Cabinet approval in two to three weeks.
The draft investment policy was placed before a group of ministers (GoM) by the Department of Fertilisers on January 18 and February 12 this year. The GoM later handed over the draft policy to a committee headed by Abhijit Sen to look into all the options for attracting investment in the urea sector. The committee is known to have endorsed the draft policy.
The government may also announce a slew of measures like revival packages for public sector fertiliser units and enabling policy framework for faster conversion of non-gas based plants to gas-based plants in July itself.
Of the eight public sector fertiliser units that remain closed, five are to be revived by profit-making PSUs and cooperatives. A techno-economic feasibility report prepared by the government has shown that a conducive investment policy and assured availability of gas can turn them profitable.
