Farm sector growth slowed to 2.1 per cent in the first half of the fiscal, compared with 3.4 per cent growth during the same period last year. This has led farm input companies to look for curative measures in the Budget to shore up agriculture growth and thus lift their own fortunes.
Increase in global fertiliser prices and the weak rupee have marred the government’s efforts to rein in the fertiliser subsidy bill in the current fiscal. For the nine-month period ended December, non-urea fertiliser sales slipped by almost 21 per cent to 17 lakh tonnes. Sales of cheaper urea for the period were marginally higher than last year. The UPA Government is targeting a 15 per cent reduction in the subsidy outgo for the next fiscal.
While softer global prices may provide some respite, increase in the urea selling price and a direct subsidy transfer mechanism will hold the key to lower subsidies. These measures may aid urea players by reducing policy uncertainty and freeing up working capital.
credit is key factor
With the recent monsoon proving quite erratic, focus will remain on expanding investments in irrigation to insulate farm growth from the vagaries of nature. Agricultural credit will also be a key factor to watch, as in years of falling farm incomes, availability of institutional credit is critical to increase crop coverage and yield. Sugar is one commodity sector that expects material changes in the Budget. The current levy obligation which mandates sugar mills to sell up to 10 per cent of their produce at lower-than-market price is expected to be abolished.
The government currently pays millers Rs 17 for a kg of sugar, compared with the current market price of Rs 34 a kg. The government supplies nearly 27 lakh tonnes of sugar annually through the public distribution system. If implemented, this may add in excess of Rs 4,500 crore to the sugar producers’ revenues and profits.