Fertilizer Industry in India

CCEA approved the proposal to hike subsidy rates for Phosphorus and Potassium based fertilizers

• The Cabinet Committee on Economic Affairs has approved the proposal to hike subsidy rates for phosphorus and potassium-based fertilizers by 140% in a bid to provide relief to farmers as the kharif sowing season begins.
• The estimated additional subsidy burden is around ?14,775 crore, with the Centre emphasising that this is a one-time measure as part of COVID-19 relief.
• Unlike urea, where the Centre sets a fixed maximum retail price, non-urea fertilizer prices are decontrolled, with the Centre fixing nutrient-based subsidy rates.
• So far, a 50 kg bag of di-ammonium phosphate (DAP), the fertilizer most popular with Indian farmers after urea, was sold at ?1,200, including a subsidy of about ?500.
• However, the bull run in the global commodity markets has seen a surge in prices of imported raw materials as well as finished fertilizer. In early April, a number of Indian fertilizer companies hiked their DAP prices to 1,900 per bag.
• Farmers’ groups protested against the 700/bag hike, pointing out that their input costs for the Kharif season would spiral out of control.

Fertilizer Industry in India

• It is 1 of the 8 core industries. Fertilizer has the minimum share in Index of Core Industries.
• India is the 2nd largest consumer of Urea fertilizers after China. India also ranks 2nd in the production of nitrogenous fertilizers and 3rd in phosphatic fertilizers. Potash requirement is met through imports since we have limited reserves of potash. There are 2 types of Fertilizers
  1. Primary Fertilizers: classified on the basis of nutrients they supply to soil like N:P:K:
     1. Nitrogenous (Urea),
     2. Phosphatic (di-ammonium phosphate - DAP) and
     3. Potassic (muriate of potash (MOP) fertilizers.
  2. Secondary Fertilizers includes Calcium, Magnesium and Sulphur.
  3. Micronutrients include Iron, Zinc, Boron, Chloride etc.
• Fertilizer subsidy (Food > Fertilizer > Petroleum > Interest payments)
  1. Earlier no Fertilizer subsidy was paid till 1977. Oil crisis of 1973 led to increase in Fertilizer prices leading to a decline in consumption and an increase in food prices. In 1977, Govt subsidized manufacturers.
  2. After 1991 crisis, Govt decontrolled the import of Phosphate and Potash but Urea imports is restricted.

Urea Production and Pricing mechanism

• Urea is the source of Nitrogenous fertilizer and it is heavily subsidized by Center. Today Urea is the only fertilizer which remains controlled.
• CCEA approved continuation of Urea Subsidy Scheme upto 2020
  1. It is a part of Central Sector Scheme. Urea price will be same till 2020.
  2. Now DBT Scheme is approved for fertilizer subsidy to urea manufacturers and importers. It also includes imported Urea subsidy which is directed towards import to bridge the gap between demand and indigenous production of urea. It also includes freight subsidy for movement of urea.
  3. Benefits
     1. DBT will ensure timely payment of subsidy to urea manufacturers. Fertilizer Co. leading to timely availability of urea to farmers.
     2. This will reduce the leakage of fertilizer subsidy and black marketing.
     3. Ceiling might be put to reduce the overuse of Nitrogenous fertilizers.
  4. Subsidy to Fertilizer manufacturer/ importer = Farm Gate price - MRP paid by Farmers.
• New Urea Policy of 2015 (till 2019-20)
  1. With the objective of maximizing indigenous urea production, promoting energy efficiency in urea production and rationalize subsidy.
  2. It is applicable to existing 25 gas based units.
  3. It ensures timely payment to urea manufacturers resulting in timely availability of urea to farmers.
• Urea is given at statutorily controlled price = Rs. 5360/ MT. Other charges for Neem coating.
• Center plans to ease control on the retail prices of Urea and wants to make it more targeted.
• Earlier Mandatory Neem coated urea production was done to slow down the dissolution of nitrogen into soil, resulting into less nutrient requirement.
• Govt is also planning over fixing a Nutrient Based Subsidy (NBS) rate for Urea to promote balanced use of fertilizers and bring efficiency in industry.

CCEA approved continuation of Nutrient Based Subsidy scheme till 2020

• Under this scheme a fixed amount of subsidy decided on annual basis, is provided to fertilizer companies (other than Urea) depending on its nutrient content. It is applicable to 22 fertilizers (other than Urea).
• Govt announces a fixed rate of subsidy on each nutrient of subsidized Nitrogen, Phosphate, Potash and Sulphur fertilizers. MRP is decided by considering international and domestic prices of P&K fertilizers, exchange rate and inventory level in the country.

Infrastructure

• Fertilizer Corporation of India Limited: has 4 units at Sindri (Jharkhand); Gorakhpur (UP); Ramagundam (AP) and Talcher (Odisha) and Korbe (Chattisgarh).
• Hindustan Fertilizer Corporation Limited: at Barauni (Bihar); Durgapur (WB) and Namrup (Assam).
• Rashtriya Chemicals and Fertilizers Limited, Trombay.
• National Fertilizers Limited at Bhatinda (Punjab) and Panipat (Haryana).