India relaxes production limits for domestic urea producers

KOLKATA (ICIS)–The Indian government has tweaked rules that will enable domestic urea producers to ramp up productions beyond stipulated limits, a senior government official said on Thursday.

He said that limits on production, called Re-assessed Capacity (RAC), in government parlance, had been laid down in 2015 but through an amendment of the rule last month, domestic urea producers would be free to ramp up production beyond RAC.

According to the official additional production from each of the country’s 30 urea producers would vary following relaxation of the rules depending on efficiencies and age of the operational plants and availability of feedstock.

The government was optimistic that at the aggregate level domestic urea production had the potential to go up by at least 4m tonne/year, starting from the current fiscal.

This would significantly reduce the import dependency of country for the fertilizer, he added.

According to data sourced from department of fertilizers, India’s annual urea demand ranged around 32m tonne of which domestic production averaged at 24.5m tonne/year while the balance was met through imports.

The relaxation of production limits for fertilizer companies was part of the measures initiated by the government to end imports of urea over the next five years, the official said.

Explaining the rationale of the erstwhile production limits, the official said that it had been aimed to keep a check on government’s bill as urea was retailed at a subsidized price to farmers with the government reimbursing producers the cost differential.

For example, urea was retailed at Rs5360/tonne and the difference between cost of production and selling price was the subsidy element, which was reimbursed by the government to the producers.

Hence production limits had been in place to keep a check on total subsidy bill payable to the urea producers.

Significantly, government data showed a sharp fall in urea imports towards end of 2016-17 fiscal.

During January, February and March 2017, Indian imports of urea was recorded at 0.177m tonnes, 0.138m tonnes and 0.134m tonnes respectively.

This was in sharp contrast to 0.346m tonnes, 0.413m tonnes and 0.847m tonnes during September, October and November 2016, respectively.

According to the official, the falling trend in urea imports was because of a combination of factors like expected rise in domestic production during the current year, and also because sowing season in the country was not expected to commence till another two months.