The Hindu Business Line : Need renewed focus on productivity, R&D

Without the existence of a long-term policy, the domestic manufacturers of fertiliser are unable to tie up their raw materials, whose costs are rising largely driven by Indian imports of finished products.

Mr A. Vellayan, Vice-Chairman Murugappa Group

The Finance Minister in his Budget for 2008-09 has given considerable attention to the rural and farming sectors. The agriculture growth in India is projected at 2.6 per cent this year, while China’s agriculture sector has been growing steadily at 4-5 per cent over the last 15 years. The growth of agriculture in India needs to be improved with a renewed focus on productivity, research and development and more pragmatic agricultural policies. It would appear that the stagnating food production at 219.32 million tonnes with a growing population and increased consumption has been a cause of concern for the Finance Minister and the Government. In order to address this problem they appear to have taken some positive measures.

The waiver of all agricultural loans that were overdue on December 31, 2007 and which remained unpaid until February 29, 2008 for marginal and small farmers and a rebate of 25 per cent against payment of the balance of 75 per cent under a one-time settlement for all other farmers is estimated to benefit over four-crore farmers across the country. The estimated write-off on this account is Rs 60,000 crore. More importantly, these farmers will be eligible to take fresh loans.

Irrigation outlay positive

The outlay on account of irrigation is increased to Rs 20,000 crore and this should augur well for the farm sector. Also, the setting up of the Irrigation and Water Resources Finance Corporation (IWRFC) with an initial capital of Rs 100 crore is seen as a positive move.

Recognising the need for soil testing, Government assistance of Rs 30 lakh per laboratory for 500 soil testing laboratories to be set up in Eleventh Plan has been given. Also, an allocation of Rs 75 crore has been made to the Ministry of Agriculture granted for one fully equipped mobile soil testing laboratory each to 250 districts. This also shows the Government’s intention to have a profit public partnership in the agricultural area.

Not enough for Fertiliser

In order to achieve a 4 per cent growth in agriculture from last year’s 2.6 per cent, it is important for the Government to recognise the total support that is required to the fertiliser sector in a situation where the Government is reluctant to increase the MRP of any of the fertilisers.

In my estimate, the following amounts are required in terms of subsidy allocation in the fertiliser sector for 2008-09: Urea - Rs 40,000 crore; decontrolled fertilisers i.e. DAP complex – Rs 30,000 crore; overall carryover from last year – Rs 10,000 crore, which comes to Rs 80,000 crore. However, the cash payment provision in the Budget is: Urea – Rs 20,000 crore; and for decontrolled fertilisers Rs 10,800 crore, which comes to Rs 30,800 crore.

Therefore, it is clear that there is a shortfall in subsidy provision in cash terms of Rs 50,000 crore for the year 2008-09. It is not clear whether this quantum of money is expected to be paid in bonds and, if so, what is the maxim by which the Government can ensure that those bonds have a market liquidity so that the domestic manufacturers can convert these bonds to cash in order to pay for the raw material which are in short supply worldover. In fact, there is a peculiar situation where currently Government of India pays cash for imported fertiliser, but issues bonds to the domestic fertiliser industry thereby putting the domestic fertiliser industry at a disadvantage.

Currently, the Government of India has embarked on large-scale imports of urea and DAP which has driven up the world price. This has been done prior to announcement of long-term policy for domestic manufacturers of urea and phosphatic fertiliser. Without the existence of a long-term policy, the domestic manufacturers of fertiliser are unable to tie up their raw materials, whose costs are rising largely driven by Indian imports of finished products. Therefore, the Government should (a) announce a long term policy for urea and phosphatics, (b) tie up imported raw materials for domestic manufacturers and (c) after the above two are done, then the Government should go for imports of finished products like urea and DAP.

Unless the above sequence of events is followed it will be very damaging for the domestic fertiliser industry.

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