FERTILISER BASIC

Introduction

Production of foodgrains and other agricultural crops requires use of essential plant nutrients viz. nitrogen, phosophate and potash, besides a host of secondary and micronutrients viz. Calcium, sulphur, zinc etc. generally, these are available in the soil and have infact supported farming for hundred of years. Due to growing population and increasing incomes, on one hand, demand for foodgrains and other agricultural commodities has increased manifold, on the other, the ability of agriculture to meet this has been constrained due to limited availability of land area for cultivation.

In this context, it may be noted that the net sown area virtually stagnated at about 140 million hectares during the decade of 70s, increased marginally to about 142 million hectares at the end of 80s and thereafter, stagnated at that level during 90s. In other words, over a long time span of almost 30b years, the increase was only 2 million hectares. During the same period, land-man ratio (arable land and land under permanent crop/population) declined sharply from 0.28 in 1970-71 to 0.19 in 1994-95. These unfavorable trends have been contributed, to a large extent by increasing diversion of land for urbanisation, industrialization, development of the infrastructure an so on.

The stock of nutrient available in the soil cannot obviously cope up with heavy demand. In fact, it would be imprudent to even make an attempt to draw upon it beyond a certain point, as this carries with it the danger of land - already substantially denuded due to years of farming - being permanently damaged and consequently, rendered unsuitable for cultivation. The organic materials viz. Farmyard manure (FYM), crop residue and human waste etc., provide another important source of supply1ing plant nutrients.

Fertiliser Industry

About three decades ago, India was heavily dependent on imports of food grains to feed its growing population. Grossly inadequate domestic production pushed it into a state of what was euphemistically described as ship to mouth existence. During the decades of 70s and 80s, conducive policies were followed to promote rapid and sustained increase in use of fertilizers besides, ensuring their balanced application. The hallmark of these policies was the retention pricing scheme (RPS). The objective of RPS was primarily two fold:

To introduce rapid and sustained increase in consumption by keeping the price of fertilizers at affordable levels ii) to facilitate required growth of the domestic industry by ensuring a reasonable return on investment.
To achieve the above objectives while on one hand, government controlled selling price at a low level and on the other, allowed reasonable production cost (including a reasonable margin of profit) to producing units based on prescribed efficiency norms in regard to capacity utilisation and consumption of raw materials and utilities. The RPS introduced in November 1977 for nitrogenous fertilizers and February 1979 for complex fertilizers (SSP was covered in May 1982), led to spectacular achievements by way of unprecedented increase in installed capacity, production in turn, facilitating corresponding increase in consumption. The consequential increase in crop yields particularly, wheat and paddy and resultant increase in production of foodgrains amply testifies to the success of this scheme.

Government Policies & RPS

In the 90s, certain degree of complacency crept in probably caused by the success of the RPS scheme. The sole preoccupation of policy makers with liberalisation led to neglect of the vary policies that had enabled our advance towards the goal of self-sufficiency in foodgrain production. In August 1992, even as all P and K fertilizers were decontrolled, the RPS covering phosphatic fertilizers was dismantled. On urea, even though, RPS continued, questions have been raised time and again, on the advisability / need for continuing with it.

The P and K fertilizers were decontrolled keeping in mind the need to reduce subsidy. But, subsidy was re-introduced under a new form i.e., concession support within just one month w.e.f. 1-10-1992. In fact subsidies on these fertilizers has increased dramatically from Rs 340 crores in 1992-93 to Rs. 3760 crores in 1998-99. And yet, there has been serious set back in their consumption due to increasing price to farmers (due to inadequate concession vis-à-vis increasing cost) on one hand and various distortions in implementation of the concession scheme on the other.

In the urea segment, even though, RPS continued, lack of wholehearted commitment to it has resulted in various distortions in its implementation viz., delays in fixing retention prices for new pricing period, payments to new plants (post 1992) on the basis of adhoc / provisional prices, delays in compensation for various escalation claims, non-revision of various items of cost despite significant unavoidable increases and so on. All these have affected the financial health of the units. Despite operating at high efficiency levels, they are not able to achieve the prescribed 12 percent post tax return allowed under pricing which by itself, is unattractive compared to much higher returns available in other sectors.

Fertilizer Scenario Present & Future

In the 90s growth of nitrogen capacity has considerably slowed down. In fact, bulk of the additions to capacity has come about from the projects conceived in the 80s which got delayed. No new grass root project has been taken up for implementation. Even as there is a flux of foreign investment in other sector viz., power, telecom etc. no foreign investor is keen to put money in fertilizers.

A greater worry is the continuing uncertainty of the policies. The setting up of the High Powered Fertilizer Pricing Policy Review Committee (HPC) in January 1997 had raised some hopes on this front. The HPC submitted its report to the government in April 1998. It is almost 20months since then and a long term, conducive and stable policy continues to elude the industry.

Note: All India company wise capacity / production of fertilizers, Country wise export and imports, State wise / District wise / Crop wise / Season wise consumption of fertilizers, and any other type of information regarding fertilizer production and consumption can be made available on request.

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