A new policy to boost urea production aims to make India’s fertiliser sector less dependent on imports
I
n a bid to kick-start the urea industry in India, the government passed a new Urea Investment Policy in the first half of 2012. In late September 2012, the Prime Minister’s Office (PMO) passed orders asking the Fertiliser Ministry to submit regular status reports on the policy implementation and on the revival of closed or sick urea plants, to add to the production capacity. The reports are also to look at the possibilities of investing in fertiliser assets in foreign countries. The PMO’s intervention to keep a close watch on the Fertiliser Ministry’s implementation of the urea policy is to be expected because the Indian fertiliser sector remains one of the most regulated sectors in the country. In the past, there had been an attempt to regulate the non-urea fertiliser segment. But urea, which accounts for around 50% of fertiliser consumption, is still completely controlled. The Indian government’s scrutiny is understandable, more so because the cost of producing urea is more than its sale price, driving the government to offer subsidies to producers. India produces about 22m t of urea/ year and uses about 30m t, forcing it to look at imports to meet the shortfall. Though the overall demand growth for the fertiliser industry has remained steady at around 5% between 2005 and 2012, production has remained largely stagnant during the same period. Under the new policy, private companies have now been given the go ahead to import urea for the preparation of complex fertilisers used in agriculture, something that they could not do previously. The re-worked investment policy
for the urea sector was passed to make
fact that policy hurdles have resulted in production remaining stagnant in the last few years, forcing Indian end-users to rely on imports. While predicting good returns in the near term, the report said that brownfield and greenfield expansion of four to five urea plants should take off, provided the pricing concerns on the gas supply front were addressed. Moreover, with phosphate and complex fertilisers moved to a NBS regime, these fertilisers have seen their domestic prices spiral. Manufacturers of di-ammonium phosphate and complex fertilisers have steeply increased selling prices, given the high cost of imported inputs like rock phosphate and ammonia. Selling prices of urea, however, have
the nation self-sufficient in the key soil nutrients. The government had announced a similar investment policy in 2008 to boost urea production, but the scheme had failed to attract fresh investments. Clearly, this time round, the government does not want a repeat of 2008. According to a report on the Indian fertiliser sector by research firm ICRA, price driven factors are impacting consumption. Partial price de-regulation (fixed urea price and variable non-urea fertiliser prices), lower subsidies (under the Nutrient-Based Subsidy, NBS) and a weak rupee have ‘significantly widened’ the retail price differential between urea and non-urea fertilisers, thus further skewing the consumption in favour of urea.
ICRA, too, has acknowledged the
‘India produces about 22m t of urea/year and uses
about 30m t, forcing it to look at imports to meet the shortfall’
stayed low, at $96/t, even as global prices are pegged at over $400/t. As a consequence, about 75% of the production cost of urea is subsidised by the Indian government. The Indian government is also looking to add capacity. Earlier in October 2012, Indian minister for fertilisers Srikant Jena announced the revival of three closed urea units of the Fertiliser Corporation of India (FCIL). Also in October, India’s Cabinet Committee on Economic Affairs approved the revival of the Talcher urea plant along with four other closed units of FCIL at Sindri, Korba, Ramagundam and Gorakhpur in North India. Given the wide disparity between
urea’s market price and its actual cost of production, the Indian government needs to expedite targeted fertiliser subsidies to flow only to needy farmers, which, in turn, will bring in a uniform subsidy regime for all fertilisers.
A Nair is a business journalist based in Mumbai, India.