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Run-up to the Union Budget 2002-03: Fertilizers

Background

On the basis of usage the fertilizer industry is divided into Straight Nitrogenous Fertilizers (N), Straight Phosphatic Fertilizers (P) and Potassic (K) & NP/NPK Complex Fertilizers.

On the basis of the government policy the industry can be bifurcated into Controlled Fertilizers and Decontrolled Fertilizers. Urea is the only controlled fertilizer. Government controls price of urea by fixing Farmgate price & Retention price.

  • Farmgate price is the uniform market price for urea. Prevailing Farmgate price is Rs 4,600 per tonne excluding local levies.
  • Retention price is the price fixed for the manufacturers so as to assure 12% post tax return on net worth.
  • Difference between the Retention price & Farmgate price is borne by the Government as subsidy.
  • Import of urea is made through canalizing agencies like MMTC Ltd, State Trading Corporation & Indian Potash Ltd.
  • During the period Apr-Dec 01, production of fertilizers was lower by 3.2% as compared to the corresponding period of the previous fiscal.
  • Imports of fertilizers during Apr-Oct 01 has shown an increase of 3.2% compared to the corresponding period of the previous fiscal.

    Key Inputs
    Rock phosphates, Phosphoric acid, Feedstock, Natural gas, Naphtha, Sulphur, Ammonia, Coal.

    Duty Structure

    Product

    Excise Duty

    Customs Duty(Basic)

    Straight Nitrogenous Fertilizers:

    Urea

    16%

    5% (canalized)

    Ammonium Sulphate

    16%

    5%(free)

    Straight Phosphatic Fertilizers:

    Single Superphosphate (SSP)

    16%

    35%(free)

    Potassic & NP/NPK Complex Fertilizers:

    Muriate of Potash (MOP)

    16%

    5%(free)

    Di - Ammonium Phosphate (DAP)

    16%

    5%(free)

    Major announcements in previous year's budget

    Finance Minister announced his intention to phase out existing retention pricing scheme in the medium term. Government decided to implement the recommendations of the Expenditure Reforms Commission for a phased program of complete decontrol of urea by 01-Apr-06.

    In the first phase the Government decided to undertake following steps:

    • The unit specific Retention Price Scheme would be replaced by Group Concession Scheme.
    • The rate of concession for urea units based on naphtha/FO/LSHS would be linked to international prices of these feedstocks.

    Industry's demand from Union Budget 2002-03

    The Fertilizer Association of India has demanded the following:

    • Rationalization of feedstock prices.
    • Protection for the viability of all efficiently run manufacturing units.
    • Import duty on urea at 5% is acceptable till the imports are canalized through Government agencies. But as and when the import of urea will be made free, the Government should declare the duty rate at a reasonably high level to protect the domestic industry.
    • The duty rate on import of DAP can be continued at the existing level of 5% till the scheme of differential concessions support continues. But since this scheme is not WTO compatible, the rates of duties have to be raised to 35% to protect the domestic industry.
    • Fertilizer raw materials, intermediates, plant and machinery and spares used in the manufacture of fertilizer, needs to be completely exempted from levy of customs & excise duty.

    Key Players
    Fertilizer Corporation of India, Indo Gulf Corporation, IFFCO, Chambal Fertilisers & Chemicals, Nagarjuna Fertilizers, SPIC, Coromandel Fertilisers, EID Parry, Fertilizers & Chemicals Travancore, Zuari Agro Chemicals.

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