The Hindu Business Line : Fertiliser units may be forced to trim output

What they say
Unless at least Rs 4,000 crore is provided for the current fiscal, some of the units may be forced to down shutters.
If the government objective is to remove the subsidy outgo, controls on price have to be freed and a level-playing field with imports be created.

Mumbai , March 22

The cash-strapped fertiliser manufacturers may be forced to cut output from the next quarter, if arrears on account of subsidy are not released immediately. This could potentially impact the availability of fertilisers for the ensuing kharif sowing season, it is feared.

According to industry representatives, there is a backlog of about Rs 6,000 crore to be paid to various companies, mostly to manufactures of phosphatic fertilisers. If the arrears are not released this month, the fund already allocated will be exhausted in the next two to three months, they said.

Shortages likely

Even if the backlog is cleared before March 31, demand for 2006-07 as projected by the Finance Ministry, will still be short by Rs 4,373 crore for phosphatic and potasic fertilisers, said officials of leading manufactures. According to them, if the situation is not corrected, DAP and urea shortages may appear by July-August. Frustrated by the present system of subsidy — based on governments deciding on the selling price — the manufacturers argue for an alternative scheme, linking subsidy with the MRP.

According to Mr U.S. Jha, Vice-Chairman of Fertilizer Association of India and CMD of Rashtriya Chemicals and Fertilizers Ltd, the industry is not `practically' getting subsidy since November 2005. The revised budget announced by the Finance Minister for 2005-06 is about Rs 17,000 crore against the requirement of Rs 24,000 crore, he said.

"Unless at least Rs 4,000 crore is provided for the current fiscal, some of the units may be forced to down shutters," he said.

Report recommendation

Fertiliser manufacturers have called for implementation of the Abhijit Sen Committee report, which recommended benchmarking of subsidy on DAP with international price of DAP.

They are of the view that if the government objective is to remove the subsidy outgo, then controls on price have to be freed and a level-playing field with imports be created. Alternatively, if the objective is containment of subsidy, then a fixed per unit subsidy for each product/nutrient would be ideal in addition to freeing the price after taking quarterly or other periodic undertaking from units for price, he said.

According to them, the manufacturers margin now is just about 2 per cent, which is lower than the commission paid to the dealers.