Agri Business

Retail prices of fertilisers set to be hiked after May

Harish Damodaran New Delhi | Updated on March 04, 2011

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Farmers can expect a hike in retail prices of fertilisers after May, when elections to the crucial State assemblies of Tamil Nadu, West Bengal, Kerala and Assam get over.

The reason for this is simple. The 2011-12 Union Budget has provided just Rs 49,997.87 crore as subsidy payable to fertiliser companies, which includes Rs 13,308 crore on domestically manufactured urea, Rs 6,983 crore on imported urea and Rs 29,706.87 crore on other fertilisers.

This is lower than the Rs 54,976.68 crore in the revised estimates and only marginally higher than the budgeted Rs 49,980.73 crore for the current fiscal. This, when international prices of fertilisers are now ruling way above the benchmark levels used to compute nutrient-based subsidy (NBS) rates on nitrogen (N), phosphorous (P), potassium (K) and sulphur (S).

For determining the NBS rates payable on various non-urea fertilisers – linked to their individual nutrient composition – from April 1, 2010, the benchmark landed price of urea (for N) was taken at $310 a tonne, with these being $500 a tonne for di-ammonium phosphate (DAP, for P), $370 a tonne for muriate of potash (MOP, for K) and $190 a tonne for sulphur (for S).

As against this, urea is currently importable only at about $400 a tonne (cost & freight). The corresponding landed prices are $625 for DAP, $420 for MOP and $220 for sulphur. Even imports of phosphoric acid – a key intermediate for manufacture of DAP – are now taking place at roughly $830 a tonne, compared with $775 a year ago. The indicative landed rates are still higher at $920-950 for the April-June 2011 quarter, for which contracts are being envisaged.

Given this picture, there are only two options for the Centre. The first is to raise the NBS rates to reflect the actual prevailing global prices. That would obviously entail a higher subsidy outgo, put in the region of Rs 75,000 crore. But as the Budget has not made any extra provision, it leaves only the second option of increasing the retail prices charged to farmers.

“Since the State elections are happening in May, the hikes are likely to happen only after that. It may not be too late then because the kharif plantings start from mid-June and fertiliser sales also take place around that time”, sources pointed out.

What about sops such as according infrastructure status to investments in fertiliser production? The Finance Bill has proposed 100 per cent tax deduction under Section 35AD of the Income Tax Act on capital investments in both greenfield projects as well as brownfield expansions undertaken after April 1, 2011.

“This incentive has no meaning without a new fertiliser investment policy, which itself is not possible unless companies enjoy leeway in pricing their product. There is nothing in the Budget on this, apart from a general statement by the Finance Minister that the extension of the NBS regime to cover urea is under the Government's active consideration”, the sources added.

Published on February 28, 2011

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