Cut excise duty on pesticides

Pesticides industry is one of the major facilitator of the agricultural sector. Pesticides are one of the important agricultural inputs required to protect crops from the ravages of pests and diseases.

It is estimated that around 10-30% of the crop is damaged due to pests including insect pests, diseases, rodents and weeds at various stages of cultivation and distribution.

In value term crop worth Rs 100,000 crore is destroyed due to inadequate and improper usage of pesticides. India's  per hectare consumption of pesticides is one of the lowest in the world with consumption very much biased towards insecticides.

Hence it is imperative that the government pays heed to the industry in addressing their problems. The pesticides industry has played a pivotal role in increasing the agricultural production by improving the productivity of Indian farmers.

Use of pesticides not only reduces crop loss but also provides an indirect insurance cover to the farmer by protecting his investment in seeds, fertilizers, irrigation and labor from ravages of insects, pests and weeds.

It is pertinent to note that there is no excise duty on seeds and fertilizers but pesticides attract 8% excise Duty.  For the benefit of farmers and to improve their living standards, the industry wants rationalization in this front. The industry also faces volatile input prices thus impacting the margins significantly.

Current duty structure

Industry expectations

The pesticides industry expects the following measures to be implemented by the government in the forthcoming budget-

• Excise Duty: The industry wants the excise duty on pesticides to be reduced to 4% from the current level of 8%. It also seeks radical cut in excise duty on furnace oil to 4% from the current level of 16%.
• Import duty on Fuels: The import duty on major fuels like Fuel oil, LSHS, Coal etc used by the industry is currently on the higher side. The industry desires the import duty to be reduced to zero from the current level of 5%.
• Many of the major pesticides manufacturers have set up captive power plants in order to fulfil their power requirement, whose supply is deficient from the state power grids. The industry desires that the import of input of captive power plants and its spare are allowed duty free. Similarly fuels required for captive power plants may also be allowed at zero rate of duty. This will enable the industry to completely become self reliant in power.
• The Fringe Benefit Tax (FBT) is expected to be removed, besides reduction of service tax by 5%. The industry also desire Liberal Bank Credit facility to Exporters.

Analyst expectations

Realistically no major reforms are expected for the pesticides industry. Reduction in excise duty is very unlikely, as it would not solve the basic problem of spurious manufacturers.

Also volatile inputs prices coupled with lower pricing power due to price sensitive nature of the user group will not enable the industry to venture into capacity expansion and innovation in the segment. The government has to introduce measures to neutralize the biasness to wards usage of insecticides.

Usage of other pesticides needs to be encouraged in order to achieve well-structured growth. The Budget is unlikely to serve any growth stimulus for the industry.

Stocks to watch

United Phosphorous, Excel Crop Care, Meghmani Organics, Punjab Chemicals.

Outlook

But the Indian Meterological Department (IMD) on June 24, 2009 came out with second stage forecast for 2009 Southwest Monsoon Rainfall.  It said that the rainfall during this season is likely to be below normal at 93% of the long period average with a model error of +/- 4%. 

This forecast was revised from near normal or 96% of the long period average with a model error of +/-5% predicted in the first stage forecast released on 17th April 2009.  The delay in arrival of monsoons, and the expectation of lower rainfall is a concern, as demand for pesticides could also be impacted if rainfall turns inadequate.

The increased popularity of genetically modified seeds has been hitting hard the demand for pesticides.  But oflate, even these GM crops require different range of pesticides, which comes as an opportunity for the domestic players. 

Also, as low cost producers of generics, India stands to gain by supplying ingredients and intermediates to the global players.   As regards budget, increased thrust on rural India will benefit pesticide sector.