Fertiliser cos see no losses under new subsidy scheme

Fertiliser companies are finally heaving a sigh of relief. They see no underrecoveries under the new nutrient based subsidy (NBS) policy, which will complete one year in April.

In complex fertilisers, which are covered under the NBS policy, the companies have not seen any underrecovery for several years now. This is because the subsidy component under NBS is predetermined and fixed, while retail prices have been decontrolled. India earlier had a concession scheme when subsidy dispensation was monthly and depended on international prices.

“Under the NBS scheme, when we are not in a cost-plus regime as earlier, the issue of underrecoveries is not relevant. Prices in the current financial year have gone up by five to six per cent, which the market has readily absorbed. Demand has gone up substantially and global markets are very strong. The price increase has, to an extent, taken care of input cost increases in the current financial year,” said H S Bawa, executive vice-chairman, Zuari Industries Ltd, and vice-chairman of Chambal Fertilisers and Chemicals Ltd.

“Such a scenario will enable the government to contain subsidies substantially, as fertiliser companies will be in a position to pass on the impact of increased costs to the farming community,” Bawa added.

The stock prices of some fertiliser companies have done well during this financial year.

“The rise in stock prices can be attributed to the fact that demand and growth have been robust. Also, it is likely that the policy environment will improve further. It is known that fertiliser companies have great opportunities if the policy environment gets better. The underrecoveries, which should not be there, are, hopefully, a short-term issue,” said Ajay Shriram, chairman and senior managing director, DCM Shriram Consolidated Ltd.

Prior to the implementation of the NBS policy and decontrol of prices of N,P,K, subsidy payout was done on a monthly basis, linked to the international prices through a particular mechanism. Hence, there used to be a lot of uncertainty and instability under the previous concession scheme. As a result, the fertiliser firms used to incur heavy losses due to fluctuation in prices.

“The situation became severe in the second half of 2008-09 when some leading companies faced losses of as much as Rs 800 crore due to a sharp rise in international prices but the government based its calculation on the lower value, as it compared months according to the policy then,” said Satish Chander, director general of the Fertiliser Association of India.