Indian fertilizer group calls for subsidy reforms

03 December 2008 15:48  [Source: ICIS news]

NEW DELHI (ICIS news)--The Fertilizer Association of India (FAI) has demanded that  the government free its fertilizer price and marketing controls by creating a new subsidy-delivery mechanism for the country’s farmers, the association said on Wednesday

In a comprehensive review of India’s fertilizer market, the FAI said: “A breakthrough in policy is needed to meet the twin objectives of containing fertilizer subsidy and ensuring health and growth of the domestic fertilizer industry.”

FAI said: “The industry feels that it may be decontrolled to enable it to harness its full potential. The government may work out [an] alternative mechanism of giving fertilizers at prices lower than the delivered cost of fertilizers to the farmers.”

The government currently uses the fertilizer industry as conduit for the delivery of subsidy to farmers by controlling fertilizer prices.

It reimburses the difference between the notified retail prices and the cost of fertilizers as a subsidy to the companies.

The subsidy currently constitutes about 80% of the delivered cost of fertilizers.

The FAI said the estimated subsidy for the current 2008-2009 financial year would remain unchanged at rupees (Rs) 1,000bn ($19.97bn), in spite of the decline in global prices of fertilizers and intermediates.

The gains that accrued according to the formula had been offset by the depreciation of the rupee against the US dollar, the FAI said.

The FAI said the government should earmark an additional Rs300bn to raise the fertilizer-subsidy allocation to the estimated requirement.

It should also immediately make a budgetary allocation of Rs1,000bn for the 2009-2010 financial year, taking into account the growth in consumption of nutrients and the unabated depreciation of the rupee, said the FAI. 

In addition, the FAI called for the government to reimburse the subsidy in cash – and not partly in the form of long-term bonds, which the companies are forced to sell at discount to ease the liquidity crunch.

The FAI also said it felt the sharp decline in international prices would adversely affect the operations of some domestic-phosphatic and complex-fertilizer manufacturers.

This, it said, called for a change in the subsidy and pricing mechanism.

The FAI estimated that imports of urea, diammonium phosphate and muriate of potash for the 2008-2009 fiscal year at 7m tonnes, 6m tonnes and 4.5m tonnes respectively.

($1 = Rs50.08)

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By: Naresh Minocha
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