6/24/2014 Funds-starved industry seeks urea decontrol | Business Line

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Funds-starved industry seeks urea decontrol
HARISH DAMODARAN
VISHWANATH KULKARNI
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Drought prospects may affect fertiliser use
New Delhi, June 22:
For fertiliser firms, the main problem today is one of liquidity arising from inadequate provision and delayed
disbursement of subsidy by the Centre.
The Interim Budget for 2014-15 has provided 67,970.33 crore towards fertiliser subsidy. But of this, about 35,000
crore relates to payments for 2013-14 carried forward to this fiscal.
That leaves barely 33,000 crore to meet the current years requirements. Take the case of urea. Indian firms produce
around 23 million tonnes (mt) of urea annually. While the average concession rate covering production costs is
roughly 16,000-16,500 a tonne for gas-based plants, the corresponding MRP for urea fixed by the Centre is 5,360.
Inadequate and delayed
Thus, the annual subsidy requirement the gap between the concession rate and MRP for domestic urea alone
comes to about 25,000 crore, which cannot be met by the 33,000 crore effectively provided for in 2014-15. This is
because domestic urea accounts for only 40-45 per cent of the total subsidy provision; the remaining is on account of
imported urea and other fertilisers. Besides inadequate provision, the Centre has lately resorted to unconventional
methods to meet subsidy obligations, including through Special Banking Arrangements (SBA).
This involves allowing firms to borrow from public sector banks against their subsidy receivables at 10.25-10.4 per
cent interest, with the Centre providing subvention up to a maximum of 8 per cent. Banks have so far lent 21,500
crore through three SBA instalments since November.
This borrowing has been forced on us only because of the Centre not disbursing the subsidy on time. Worse, instead
of receiving interest on delayed payments, we have to pay the balance 2.4 per cent interest on the SBA loans, an
industry source pointed out.
The NBS (nutrient-based subsidy) system provides for a fixed /kg subsidy on each nutrient: N, P, K and S. While
companies are free to set the MRPs of individual fertilisers, they also get a subsidy on these linked to their specific N,
P, K and S content. The NBS, however, excludes urea, whose MRP is still fixed. While the MRPs of most fertilisers
post-NBS have gone up 150-250 per cent, that of urea has risen only 11 per cent (see Table).
This has hurt companies by, first, boosting urea consumption artificially and, in turn, leading to higher subsidy
receivables. Second, vastly cheaper urea has also made it difficult to increase the MRPs of other fertilisers.
These effects may be magnified in a drought year. According to US Awasthi, Managing Director of IFFCO, fertiliser
consumption could fall by 10-15 per cent if the monsoon turns out to be bad. The decline would be largely in costlier
non-urea fertilisers.
This would be disastrous, as indiscriminate urea use is already affecting soil health and polluting our underground
water. Urea should be brought under NBS and its MRP freed just as with other fertilisers. Also, we must move
towards paying fertiliser subsidy directly to farmers and not route it through companies, said Awasthi. While urea
decontrol is unlikely now, the industry is, however, looking for a significant price hike to reduce differentials vis--vis
other fertilisers.
An MRP hike of 5,000/tonne for urea, maybe in two instalments, is quite feasible. On an annual consumption of 30
mt, it will straightaway save 15,000 crore of subsidy, the industry source noted.
(This article was published on June 22, 2014)
6/24/2014 Funds-starved industry seeks urea decontrol | Business Line
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