03 March 2008 17:39 [Source: ICIS news]
MUMBAI (ICIS news)--India’s fertilizer subsidy allocation in Finance Minister Palaniappan Chidambaram's recent budget is just about half of the actual required amount, senior industry officials said on Monday.
“The finance minister has allocated Indian rupees (Rs)315bn [$8bn] for fertilizer subsidy, whereas the department of fertilizer had estimated the need for at least Rs600bn to be put aside for these subsidies,” said an executive at Gujarat Narmada Valley Fertilizers Company (GNFC).
“The shortfall in allocation would increase pressure on fertilizer companies as due to inadequate financial provisions the government could delay the timely payment of bills,”added an executive at Rashtriya Chemicals and Fertilizers (RCF).
“In order to meet this deficit, the government could issue bonds to the fertilizer companies,” he said, adding that bonds turn out very expensive as the companies have to liquidate them.
The government’s decision to waive off customs duty on naphtha imported for production of fertilizer is of little benefit to the sector at macro level because very few companies use Naphtha as raw material for producing fertilizer, producers said.
“Naphtha is a very expensive feedstock, it costs almost six times higher than natural gas and is much more costly than fuel oil and other raw materials,” a Gujarat State Fertilizer and Chemicals (GSFC) official said.
With the increase in consumption of fertilizer, there is need to expand the industry for which favourable policies to set up and revive units is necessary, most producers said.
Although the government intended to revamp underperforming fertilizer units, this plan should have been made into a policy to ensure the sector’s development, officials said.
“The customs duty cut to 2% from 5% on unrefined sulphur is likely to reduce the input cost and it would add to the bottom line, however, it is too early to say by what margin,” the RCF official said.
The fertilizer producers also felt that major quality decisions should be taken to promote new investment and that there was not much clarity on the policies.
As an incentive for local chemicals companies setting up overseas, India’s Department of Fertilizers is considering buying back a quantity of urea and phosphate fertilizers from them at a guaranteed rate.
“With the increasing feedstock costs, our main concern is that cost of manufacturing fertilizer should come down,” another official said.
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