It is common knowledge that performance of the Indian agriculture sector in the past 10 years has been nothing to write home about. Production of food grains has remained almost stagnant and this has posed a great danger to our food security. Thus, it is imperative that we push up agriculture production to atleast 4% annual growth by undertaking measures such as efficient use of resources and conservation of soil, water and ecology on a sustainable basis and in a holistic framework. Measures that besides other things will also call for increased use of fertilisers.  However, the road to availability of the same is not smooth as problems like lack of pragmatic long-term investment friendly policy, stagnation in capacity and production of fertilisers and inadequate availability of gas currently beset the fertiliser industry.

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Industry wish list

Fertiliser Association of India

The capital subsidy scheme for conversion of FO/LSHS based urea plants to gas under the policy for Stage III of the NPS should be announced without further delay

Adequate provision of funds for subsidy/concession on urea as well as P and K fertilisers as required by the government approved subsidy/concession schemes

The benefit of tax holiday for a period of 15 years should be extended to all future fertiliser projects to attract investment in this sector

Fertilisers and inputs should be exempted from state level VAT

Customs duty on items like LNG, ammonia, phosphoric acid, rock phosphate and sulphur, which currently stands at 5%, should be withdrawn

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Budget over the years

Budget 2005-06

Under the Bharat Nirman initiative, by 2009, to bring an additional one crore hectares under assured irrigation.

About 1.2 m hectares have been covered under micro-irrigation so far, and the plan is to increase the coverage to 3 m hectares by the end of the Tenth Plan and to 14 m hectares by the end of the Eleventh Plan. Accordingly, additional Rs 4 bn for promoting micro-irrigation in 2005-06 is provided.

Fertiliser subsidy bill estimated for 2005-06 at Rs 162.5 bn (from Rs 156.6 bn as per the revised estimate for 2004-05).

Budget 2006-07

The outlay under the Accelerated Irrigation Benefit Programme (AIBP) has been increased from Rs 45 bn last year to Rs 71.2 bn in FY07, with the Central Government supporting the programme with a grant of Rs 23.5 bn. An additional 600,000 hectares of irrigation potential are expected to be created in FY07.

The target for farm credit has been raised from Rs 1,415 bn in FY06 to Rs 1,750 bn in FY07, with the addition of 5 m farmers envisaged.

Farmers to receive short-term credit at 7%, with an upper limit of Rs 300,000 on the principal amount.

Customs duty on natural gas has been reduced from 10% to 5%.

Budget 2007-08

Proposals to improve the economic viability of farming

Government to offer seed producers a grant or concessional financing in order to double the production of certified seeds within a period of three years

 Pass through status to venture capital funds in respect of investments in venture capital undertakings in seed research and development

Implementation of a pilot programme in at least one district in each state to find a method of delivering the fertiliser subsidy directly to the farmers

Hike in the dividend distribution tax from the current 12.5% to 15%

A secondary and higher education cess @ 1% of the aggregate of duties of excise has been imposed on excisable goods. This would be in addition to existing education cess of 2% imposed in budget 2004

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Key positives

Government thrust: The agriculture sector in India is grappling with issues of food security, as while demand is increasing at a steady clip, production of food grains has remained virtually stagnant over the past few years. Thus, with the government targeting a growth of atleast 4% in agricultural output in the medium to long-term, demand for fertilisers is likely to receive a boost.

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 cheap rates. The emergence of commodity exchanges and plans on the crop insurance side are steps in the right direction, which are expected 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.

Better outlook for gas availability: Gas is an important feedstock for a lot of fertiliser players in the country. Thus, the recent spate of discoveries of gas in the KG basin augurs well for the long-term sustainability of the sector. Further, if some of the cross border pipelines indeed come to fruition, the availability of gas and consequently, domestic production capability of fertilisers will go up further.

Key negatives

Unclear government policy: Domestic producers continue to reel under the uncertain and unfavorable government policy framework. Since prices are controlled, there is a lot of disagreement between the producers and the government over issues such as hike in certain costs not being compensated fully by the latter. This coupled with the fact that the disbursement of subsidy gets delayed by as much as 6 months is affecting the viability of the industry and has also discouraged fresh investments into the sector.

Rising imports: Instead of incentivising domestic production, government has been relying more on imports in recent times, which has not only proved to be expensive but is also depriving local companies of growth opportunities. If the trend persists, the domestic companies may not able to participate in the industry growth story to the extent that was envisaged.

Skewed consumption pattern: As per annual reports of companies, fertilizer use in India is inadequate, imbalanced and is skewed in favour of nitrogen, which has resulted in emergence of multi nutrient deficiencies in Indian soils. The deficiency of secondary and micronutrients have started limiting the response to primary nutrients (NPK). While there can be no two opinions about the value of judicious use of fertilizers to enhance food production, steps must be taken to avoid imbalanced use, which in the long-run may deteriorate the soil health and also create environmental problems.