FUTURE PROSPECTUS OF INDIAN FERTILIZERS - A REVIEW

Transcription

1 FUTURE PROSPECTUS OF INDIAN FERTILIZERS - A REVIEW Dr. M. RAJARAJAN Assistant Professor, Commerce Wing, DDE, Annamalai University, Annamalainagar Dr. T. SIVAKUMAR Assistant Professor, Department of Commerce, D.B. Jain College, Thoraipakkam, Chennai , Dr. T. MALATHI Assistant Professor, PG and Research Department of Commerce, Poompuhar College (Autonomous), Melaiyur-Post, Sirkali- Taluk, Nagapattinam- Dist, Pin , ABSTRACT This article has highlighted the future prospectus of Indian fertilizers. Application of fertilizers have helped transform the agriculture sector in India from being dependent on food grain imports before independence to a stage of self-sufficiency. India has reached this stage in being able to meet the local demand for fold grains by establishing strong chemical fertilizer industry. It made a very humble beginning with setting up of first Single Super Phosphate (SSP) manufacturing unit Ranipet near Chennai with a capacity of 6000 MT a year. India s green revolution in late 1960s gave a positive boost to the sector and presently India is the third largest fertilizer producer in the world. Presently there are 57 large fertilizer plants in the country producing urea, DAP, complex fertilizer, ammonium sulphate and calcium ammonium nitrate. Fertilizers, especially nitrogenous fertilizer remain one of the few highly regulated industries in India. Prices, subsidies, distribution restrictions, imports and even choice or technology, feedstock are controlled /regulated by the government. There are signs that the fertilizer pricing mechanism is being reviewed, imports liberalized, tariff rates revised and measures being debated to lower fertilizer subsidies. Key words: Fertilizers, Retention Pricing Scheme (RPS), Distribution Policy, Import policy, policy Environment. 111

2 INTRODUCTION Chemical fertilizers have played an important role in making the country self reliant in food grain production. The role of Government of India has been significant as the Government has been consistently pursuing policies conducive to increased availability and consumption of fertilizers at affordable prices in the country. It is for this reason that the annual consumption of fertilizers, in nutrient terms (N, P & K ), has increased from 0.07 million MT in to more than 28 million MT in and per hectare consumption, has increased from less than 1 Kg in to the level of 153 Kg now. Agriculture productivity is dependent upon various factors like soil properties, climate conditions, irrigation facilities, seed quality and variety, cropping pattern, techniques of farming, prevention from pests etc, but more importantly usage of optimum primary, secondary and micro nutrients. Thus, the role of Government becomes more significant in making available all types of nutrient at affordable prices to farmers at appropriate time. IMPORTANCE OF FERTILIZERS Fertilizer is defined as any organic or inorganic substance, natural or artificial in nature supplying one or more of the chemical elements/nutrients required for plant growth. Sixteen plant nutrients are necessary for proper plant development. These are classified into three categories viz; primary (macro) nutrients, secondary nutrients, and micronutrients. Application of essential plant nutrients in right proportion, through correct method and time of application is helpful to increase crop production. Primary (macro) nutrients are nitrogen (N), phosphorus (P), and potassium (K). They are the most frequently required in a crop fertilization programme and are needed in the larger quantity by plants as fertilizer. So, major focus of the Indian fertilizer sector policy has been on primary (macro) nutrients. MARKETING FOR FERTILIZER INDUSTRY Fertilizer sector constitutes the backbone of Indian agricultural industry. Therefore, government has played a very active role in the evolution, marketing and development of fertilizer industry in India. Fertilizer is not only one of the most capital intensive industries but its marketing ecosystem is also one of the most complexes in the Indian context. Fertilizer marketing in India is very much different from the manner other agricultural inputs are marketed. In order to ensure equitable supply of this very important constituent at a price which most of the farmers can afford government of India regulates the various facets of this industry especially for nitrogenous fertilizers. This involvement in the marketing domain can be understood from the very fact that for urea fertilizer majority of the marketing mix is determined not by the organizations manufacturing and marketing it but by the policy makers in the government. FERTILIZER CONSUMPTION India is the second largest consumer of fertilizers in the World, after China. It accounted for 15.3 per cent of the World s consumption of nitrogenous (N), 19 percent of Phosphatic (P) and 14.4 per cent of Potassic (K) nutrients in 2008 (FAI, 2010). To ensure the availability of adequate quantity and proper quality of fertilizers to farmers, Government of India has declared fertilizer as an essential commodity under Essential Commodities Act, Fertilizer (Control) Order (FCO), 1985 was promulgated to regulate the price, quality and distribution of fertilizers in the country. GOVERNMENT CONTRIBUTION Government of India is actively involved in supporting fertilizer industry. Department of Fertilizers which comes under the ambit of Ministry of Chemicals & Fertilizers looks after overall sectoral planning and development and regulation of the industry, as well as monitoring of production pricing and distribution of the output. The main objective of Department of Fertilizers is to ensure adequate and timely availability of fertilizers at affordable prices for maximizing agricultural production in the country. This Department also administers 9 Public Sector Undertaking and one Multi-State Co-operative Society. Government is involved in providing financial assistance to the farmers for training and field demonstrations on balanced use of fertilizers. In addition, Government introduced Nutrient Based Subsidy (NBS) policy from April 2010 to encourage balanced use of fertilizers. Department of Fertilizer offers fixed rate of subsidy (NBS) on annual basis for nitrogen (N), phosphate (P), potash (K) and sulphur (S) fertilizers. FACTORS AFFECTING DEMAND FOR CHEMICAL FERTILIZERS IN INDIA The purpose of this section is to estimate three nutrients and total fertilizer demand functions from time series data and to make demand projections for proper planning for production, imports and supply of feedstock s and raw materials. To this end, separate nutrient demand functions were estimated for nitrogen (N), phosphorous (P), potassium (K) and total fertilizers (N+P+K) in the country. The fertilizer demand function is often referred to as a derived demand because it is determined to a large extent by the final demand for the crop produced. In general, the demand for fertilizer depends on (a) the price of the crop(s), (b) the price of fertilizer, (c) prices of other inputs that substitute for or complement fertilizer, and (d)the parameters of the production function that describe the technical transformation of the inputs into an output (i.e., the fertilizer response function) (Debertin 1986). Though prices may be important in determining fertilizer consumption, they are possibly less important than other nonprice factors such as introduction of new technology, high yielding crop varieties, expanded irrigation, availability of credit, changing cropping pattern, etc., causing the derived demand for fertilizers to shift over time. Specifying a forecasting model is always a challenge, especially the model type and relevant variables. 112

3 GRADE OF FERTILIZERS IN INDIA TYPES OF FERTILIZERS GRADE Straight Nitrogenous Ammonium Sulphate (AS) 20.6% N Calcium Ammonium Nitrate (CAN) 25% N Ammonium Chloride 25% N Urea 46% N Straight Phosphatic Single Super Phosphate (SSP) 16% P2O5 Triple Super Phosphate (TSP) 46% P O NP/NPK Complex Fertilizers Urea Ammonium Phosphate Ammonium Phosphate Sulphate Diammonium Phosphate (DAP) Mono Ammonium Phosphate (MAP) Nitro Phosphate Nitro Phosphate with Potash NP/NPKs CLASSIFICATION OF FERTILIZERS Fertilizers Nitrogenous Fertilizer Phosphatic Fertilizer Potassic Fertilizer Complex Fertilizer Further it can be classified into many types such as, Nitrogenous Fertilizer Phosphatic Fertilizer Potassic Fertilizer Complex Fertilizer Ammonium Sulphate Single Supper Phosphate Murate of Potash Ammonium Phosphate (SSP) (MOP) Sulphate Ammonium Chloride Sulphate of Potash Diammonium (SOP) Phosphate (DAP) Calcium Ammonium Nitrate Nitrophosphate Urea Ammonium Nitrate Phosphate Urea Ammonium Phosphate NPK Fertilizers POLICY ENVIRONMENT FOR MARKETING OF FERTILIZERS Fertilizer industry plays a vital role in agriculture produce and therefore government toot is keenly involved in almost all aspects of this industry through different policy initiatives and subsidy mechanisms. The government of India has followed the policy to ensure widespread use of fertilizer and attain self sufficiency in fertilizers. Urea is highly subsidized y the government with estimate for the subsidy on urea in the budget of every year. If the subsidy on urea is removed, its prices will shoot up 113

4 significantly. At current price levels urea is affordable for farmers; therefore, it accounts for 83 per cent of the nitrogenous fertilizers consumption in India. The department of Fertilizer finalizes the norms for capacity utilization and feed stock/consumption by urea units for different pricing periods, each period usually comprising of three years. THE DIFFERENT POLICY MEASURES FOR THE FERTILIZERS SECTOR Retention Pricing Scheme (RPS): Pricing of urea is regulated by the retention pricing scheme. It was introduced in 1997 to reconcile two conflicting objectives increasing cost of fertilizers and need to keep prices low. It is applicable only to urea. RPS is the cost plus subsidy paid to urea manufactures to compensate for higher cost and also selling price. RPS scheme is criticized for penalizing older units and at the same time is not seen as the one, which encourages units with higher process efficiencies. Distribution Policy Urea is covered by essential commodities act The government determines allocation of urea in different states for each manufacturing unit. Upto 50 percent of a state s allocation of urea is reserved for farmers cooperatives. If any manufacturer has produced more than the state quota, the excess quantity does not qualify for price and transport subsidy. Initially fertilizers were distributed through government agencies and cooperative society only. Private trade was allowed to sell fertilizer only in Presently, private trade accounts for nearly 70 percent of the total fertilizer business. Import policy Import of urea is on a restricted list. It is canalized through government accredited agencies. Price and subsidies are fixed in such a way that the prices for imported and domestic fertilizers are more or less the same at the farmers, end. Feedstock policy Manufacturers were given concession on the prices of feedstock for fertilizer plants. But in past government of India restructure liberalized environment, pricing of naphtha, fuel oil and LSHS. Concessions in prices of this feedstock, which were earlier, were withdrawn and price of feedstock was linked to import parity price. PRODUCTION FOR THE TWELFTH FIVE YEAR PLAN In the context of rapidly increasing food grain production in the country, availability of around 340 LMTPA of urea is to be planned for. It is expected that over and above the present installed capacity of LMTPA of urea (222 LMT from domestic units plus LMT from OMIFCO), additional capacity is expected to come in the next Plan period as follows: LMT capacity addition in the existing units such as KRIBHCO, RCF, NFL & Revival of Duncan Industries Ltd., Kanpur plant LMT from 3 brown field expansion projects and LMT from one green field project LMT from revival of one urea units of HFC/FCI. Gap of approx. 30 LMT to be met from JV projects abroad based on low price gas/ LNG and imports. Few JV projects are expected to come up in the countries which have abundant reserves of gas with a buy back arrangement for urea produced by these projects. INVESTMENT IN THE FERTILIZER SECTOR The fertilizer sector attracted huge investment during 70 s and 90 s. However, there has been hardly any investment during the 10th & 11th Plan. The total investment in the fertilizer sector by the end of was Rs.27, 247 crore. With the accelerated growth in the Indian economy, other sectors had high rates of return on investment, but the fertilizer sector has failed to attract more investment due to low returns. To increase the capacity of urea by about 12 million tones to a total of 33.7 million tons by , India will need to invest at least Rs.40,000 crore in the sector at current capital costs. MEASURES FOR ATTRACTING INVESTMENT IN THE SECTOR a) To insulate the new investments of the industry from the vagaries of rising price of gas, some amendments to the new investment policy have been proposed by the Department, which are being reviewed by Planning Commission as per the directive of GOM. It is pressing necessity to have suitable amendments to the policy and allocation of gas by MOPNG so that the held up investments are initiated and indigenous production of urea is increased to at least meet major portion of the demand. b) The Fertilizer Industry should be declared an industry of national importance. New investments need to be attracted to the special economic zones where fiscal benefits would go a long way to attract investments. Some of the incentives could be exemptions from various taxes, such as, i. Income tax (for a specified period). ii. Customs duties on import of capital goods, raw materials, consumables, spares etc. iii. Central Excise duties on procurement of capital goods, raw materials, consumable spares etc., from the domestic market. iv. Central Sales Tax and Service Tax. 114

5 SUBSIDIES GIVEN BY THE GOVERNMENT Subsidies given by the government for P&K fertilizers and urea are explained in the below table. Table 1 Subsidies Given By the Government (In crores) YEAR SUBSIDY ON P&K FERTILISERS SUBSIDY ON UREA TOTAL , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Source: Government of India, Department of Fertilizers. The above table clearly explains that subsidies given by the government for P&K fertilizers and Urea. In the year , government gave Rs. 6, crores for P&K fertilizers and it has increased to Rs. 65, crores in the year which is the highest amount among the study years. Subsidies amount not constant among the years and it has fluctuated throughout the year. Finally, Rs.24, crores given by the Government in the year Likewise, in the year subsidy given by the government for Urea Rs.12, and Rs.47, for the year Chart 1 Subsidies Given By the Government (In crores) 2,00,000 1,50,000 1,00,000 50,000 - Subsidy on P&k Fertilisers Subsidy on urea Total SALE OF FERTILIZERS Sale of fertilizers like Urea, DAP, MOP and NPK for the five years shows in the below table. Table 2 Sale of Fertilizers (in Lakh MTs) YEAR UREA DAP MOP NPK (April) Source: Government of India, Department of Fertilizers. 115

6 From the table it is observed that sale of fertilizers includes Urea, DAP, MOP and NPK for the year to (April). Sale of urea shows MTs in the year It has slowly increased to MTs. Likewise, sale of DAP shows MTs in the year and MTs in the final year of the study. Sale of MOP demonstrates MTs in the year and MTs in the year MOP sales have highly increased after compared with the above year Sale of NPK illustrates MTs in the year Its sales has slowly increased in the next year but in the year it has decreased to MTs. Chart 2 Sale of Fertilizers (in Lakh MTs) UREA DAP MOP NPK (April) CONCLUSION The present article concludes that, the fertilizer marketing in a free market economy needs to be reoriented for achieving optimum profits for the fertilizer companies and increased productivity of the farmer not at the cost of one another but simultaneously by creating a win-win situation. This model of developmental marketing approach is the one that will allow for the increased penetration of fertilizer not just by competing with one another but also by increasing the overall. The decontrol prices of fertilizers may lead to negative growth rate in fertilizer consumption but by enabling the farmer to understand the optimum and balanced use of fertilizer, organizations can ensure improved productivity at lower consumption of fertilizer. Organizations can also attempt to add new set of users who are currently not applying fertilizers or can add the land that was either not cultivated or on which fertilizer was not used. REFERENCES: 1. Balram Dogra, Karminder Ghuman, Rural Marketing Concepts and Practices. The Mcgraw-Hill companies. 2. Bomb s. (1995) Global Fertilizer perspective, : The challenges in structural transformation. Technical Bulletin T-42, Muscle Shoals, AL: International Fertilizers Development Centre. 3. Debertin,D.(1986) Agricultural Production Economics, New York: McMillan Publishing Company. 4. FAO (1998) Guide to efficient Plant Nutrition management, FAO/AGL Publication, FAO, Rome. 5. Fertilizer Association of India (2010) Fertilizer Statistics and earlier issues, the fertilizer association of India, New Delhi. 6. Reports of Government of India, Department of Fertilizers