India’s public-sector disinvestment programme is making brisk progress in some respects — dilution of minority stakes in listed PSUs and the listing of State insurers. But there’s one sector in which the idea of disinvestment seems to be in remission — fertilisers. Some of India’s largest private industrial groups have thrown in the towel on this sector vexed by regressive policies and the lack of a material competitive edge vis-à-vis global players. But the Centre seems intent on ensuring self-sufficiency in fertilisers, by getting PSUs to ramp up their presence. Plans are afoot to sink over ₹30,000 crore into reviving five of the eight mothballed urea-making PSUs. And this week, Parliamentary approval was sought to write off ₹20,532 crore in legacy loans and interest dues from Fertiliser Corporation of India, Hindustan Fertiliser Corporation and Brahmaputra Valley Fertiliser Corporation. Given that these PSUs have traditionally struggled with high production costs and inefficiencies, the decision to enhance State presence in the sector can prove expensive for the fisc.
While India’s consumption of both nitrogenous and phosphatic fertilisers grew at a moderate pace in recent years, domestic production, especially in the private sector, has flagged. Quite apart from the fact that Indian players have no natural competitive advantage (most of the feedstock is imported), the industry has been hobbled by draconian Government controls on operations. Selling prices for both urea and ‘decontrolled’ fertilisers are fixed way below production costs, subsidies are subject to unrealistic norms and delays, and sales are subject to an elaborate Inspector Raj. Given that the market-linking of fertiliser prices is a political hot potato, promised reforms have remained on paper for a decade, stalling private capex and prompting efficient players such as Tata Chemicals and Indo Gulf to down shutters. Given this backdrop, the payoffs from the Centre’s pet projects for reviving public sector units are by no means certain, even if accompanied by supplementary investments in gas pipelines or LNG terminals. That the Government has had to ‘nominate’ cash-rich PSUs from unrelated sectors, such as Coal India, Engineers India, NTPC and Indian Oil to fund these revival projects after they have failed to draw interested bidders, is not confidence-inspiring.
In the long run, whether it is pursued through the public or private sector, the policy objective of building a vibrant home-grown fertiliser industry may remain a pipe dream without deep-rooted structural reforms and market-linked pricing. The Centre should also recognise that the participation of private and foreign players is critical for Indian farmers to gain access to latest global advances in nutrients and delivery. Thanks to subsidies, the domestic fertiliser sector has stuck with outmoded products such as urea and DAP for decades, even as product advances such as water-soluble fertilisers and new nutrient combinations promise both lower fertiliser use and higher efficacy.