Amidst optimism about the growth prospects of the agricultural sector and consequently the fertiliser industry, policy environment continues to remain fluid. Given this backdrop combined with the imminent rise in gas price, will manufacturers be able to maintain margins?

Key Positives Low per-capita consumption: India consumes only 98 kgs of nutrients per hectare of arable land as compared to 254 kgs in China, 301 kgs in Japan and 407 kgs in Korea. Several developing nations including Pakistan and Bangladesh have higher consumption per hectare at 135 kgs and 156 kgs respectively. Increased credit availability: Though credit availability to the agriculture sector has been an issue, various measures have been taken to increase the availability of credit at a cheap rate. The emergence of the commodity exchange and plans on the crop insurance side are a step in the right direction to provide a fillip to the agriculture sector. Since fertiliser demand is a function of awareness of usage and availability of organised credit, this is expected to benefit the industry. Critical to food security: The impetus to provide a boost to the fertiliser sector stems from the fact that the country needs to have food security. Given the rise in population and falling area under cultivation, this is likely to be achieved by improving productivity. Therefore, policy measures are likely to be accelerated on the fertiliser side.		Key Negatives Political intervention: Since the farmer section is a large vote bank, both at the center and at the state level, there has been a hesitancy to take hard decisions. This has been affecting the growth of the fertiliser sector. Unclear policy environment: The sector is a highly controlled one (cap of capacity, prices, selling markets and return generation). The lack of incentive to cost-efficient producers as compared to incompetent players has been affecting not only the industry fortunes but also the government's finances. Till 2006, policy environment is likely to remain fluid. Gas de-regulation Natural gas is one of the cost-efficient sources of energy for the fertiliser industry. But gas prices are controlled in India, fertiliser manufacturers in India have been benefiting. Considering the imminent deregulation in the gas sector, there could be a sharp rise in input cost. The availability of gas at competitive rates is also an issue that needs to be addressed with high priority.

Budget 2005-06: Complete Coverage

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