The Hindu Business Line : Govt yet to decide on DAP subsidy

The Government is importing DAP in large quantities through State channels and is effectively paying a higher subsidy for imported DAP compared to domestically produced DAP since the last quarter.

New Delhi , Feb. 21

WITH just 7 days left for the 2006-07 Budget, the Government is yet to decide on the quantum of subsidy for di-ammonium phosphate (DAP) for fiscal 2005-06.

Officials in the Ministry of Fertilisers are expected to take a final call on this issue during the course of the week, sources said.

The present price of DAP in the international market is around $260-265 fob (freight on board).

The issue centres around the subsidy element on imported phosphoric acid, which is the main input for manufacturing DAP and determines the effective subsidy rate for indigenous DAP producers.

And because of this delay, the Government is importing DAP in large quantities through State channels and is effectively paying a higher subsidy for imported DAP compared to domestically produced DAP since the last quarter, the sources said. During the week, there has been an ad hoc 10 per cent increase in both the subsidies.

This in effect means that the subsidy is actually going to certain foreign fertiliser producers while domestic producers are sitting over idle capacities, fertiliser manufacturers pointed out. The subsidy element currently ranges between Rs 4,500 and Rs 5,500 for domestic and imported DAP mainly because of the huge unmet demand during the ongoing rabi season.

According to the Fertiliser Association of India (FAI), DAP production during April-December 2005 totalled 3.18 million tonnes (or 3.23 million tonnes according to the Department of Fertilisers estimates) against a target of 4.63 million tonnes and the actual total for the same period last year stood at 4.035 million tonnes.

Imports during calendar 2005 stood at 2.4 million tonnes though the commerce department estimates the figure to be 2.25 million tonnes, which exclude 90,000 tonnes shipped in February and March 2005 and around 1,00,000 tonnes shipped just ahead of year-end 2005, therefore arriving in India early this year.

Global producers are currently showing special interest in selling DAP to India before the end of the current fiscal in March because of the current low freights and weakening f.o.b. rates to take the benefit of the ruling high subsidy rate for imported DAP, which is to be released in the first quarter of next fiscal, industry sources said.