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| Fertilising policy reform | | New investment shows policy on right track |
| Business Standard / New Delhi Sep 10, 2010, 00:27 IST |
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The drought in greenfield investment projects in the fertiliser sector in India is finally set to end after over a decade. Existing and prospective investors in fertiliser manufacture are reportedly willing to invest over Rs 45,000 crore in the next few years, both in expansion of existing capacities and creation of new ones. The rising excess demand for fertiliser is driving this renewed spurt in investment activity. The increase in the demand for plant nutrients has also been spurred by some recent favourable policy initiatives. These have helped the industry come out of the red. This is good news for a sector which has been in doldrums since the early 1990s and has gone through one of the worst patches in its history in the past decade. However, these investment intentions would materialise only if fertiliser sector reforms, initiated in 2008-09, are carried forward and uncertainties over the availability of feedstock are removed. The ball, therefore, is in the government’s court. Government policy must aim to both reduce the fertiliser subsidy burden which, in turn, distorts demand in a way that is, in fact, not in the long-term interests of either the soil or the farmer who tills it, and stimulate output and productivity growth.
The government deserves credit for some recent positive moves that have contributed to an improvement in the economic health of the fertiliser industry. Significant among such moves was the decision to introduce a new pricing system for urea, backed by a 10 per cent increase in its retail price, revise the concession scheme for the single super phosphate (SSP) and introduce the system of nutrient-based subsidy (NBS) for the decontrolled phosphatic and potassic fertilisers. However, all this marks the beginning, and not the end, of the reform process. More action is needed. The policy of decontrol applies only to phosphorus (P)- and potash (K)-carrying fertilisers and not to nitrogenous (N) fertilisers (read urea) which remain under government control. As a result, urea continues to be substantially cheaper than other fertilisers, contributing to an imbalance in the use of NPK. This hurts soil health and crop productivity. Further, the fixed rate freight subsidy under the new urea pricing regime, which replaced the earlier practice of actual reimbursement of freight expenses up to the retail stage, has left little incentive for dealers to carry fertilisers to remote and hilly areas.
The government must decontrol urea and ensure that new urea units get assured supply of natural gas that will be supplied by private owners of new gas sources who operate under government-backed guarantees. The new NBS system, which has so far worked well since its introduction last April, is applicable only to a few notified nutrients. Considering the wide range of micro-nutrient deficiencies in Indian soils, the NBS needs to be extended to all nutrients. This will enable fertiliser manufacturers to produce customised, region-specific fertiliser products carrying nutrients that the soil is short of. Setting right the nutrient profile of cultivable soils is vital to optimising crop response to the application of fertilisers. The extant decline in yields must be reversed. The government should lose no time in removing hurdles to new investment in the fertiliser industry which, in turn, will reduce the unduly high import dependence in this commodity.
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