Centre must assure investment return for fertiliser firms
Namrata Singh
MUMBAI, January 13: The government will have to adopt an aggressive policy for the fertiliser industry and assure return on investments in order to attract new investments in the sector, according to a study by The Credit Rating Information Services of India Ltd (Crisil) which evaluates investment prospects in fertiliser industry. According to the study, fresh investments of any substantive size will be difficult to generate without such an assurance.Investment in the fertiliser industry in India has decelerated in the recent years even as the demand supply gap has widened. India resorts to largescale import of fertilisers, especially urea, every year to satisfy its need. Imports to the tune of three lakh tonne per annum is undertaken. The imbalance in the situation appears largely due to uncertainties with regard to the retention pricing policy followed by the government. Crisil managing director R Ravimohan said that a long-term policy is required as the potential investors would seek an assurance
that such guaranteed returns would be available to these investors over an extended long-term horizon. "Till that question is answered, it will be difficult to anticipate any additional investment in the fertiliser industry, excluding those which come from existing players," the reports says. Industry sources view Crisil's evaluation as a warning bell to the government as they feel that in case the steps are not quickened to formulate a good and enduring policy for the industry, the existing players will stand to lose. "In case a clear-cut policy does not emerge to attract investments, existing capacities may be rated unfavourably," said an industry observer. Crisil has asserted that while there is deceleration of investment in fertilisers by the domestic industry on the one hand, there is virtually no interest shown by foreign companies despite the opening up of the economy and the policies to attract foreign direct investment. This is more so as the fortunes of the fertiliser industry are closely
linked to government policies. The high-powered committee constituted under the chairmanship of former planning commission member CH Hanumantha Rao, to review the retention pricing scheme (RPS) is awaited by the industry as this is expected to define a clear-cut policy on fertilisers. There is also the need to contain the ballooning subsidy burden which has increased from Rs 4,800 crore in 1990-91 to Rs 7,767 crore in 1996-97. While the possibility of urea decontrol is rare, what the industry has asked for is a gradual increase in farmgate price which would have the dual benefit of reducing subsidy as well as correct the present distortion in nutrient consumption. Capacity addition have primarily been in the nitrogenous sector. In the phosphatic industry, due to uncertainties regarding the government's pricing policies and escalating input costs, capacity additions have been more or less stagnant. There are about 59 plants manufacturing nitrogenous fertilisers and 101 manufacturing phosphatic
fertilisers which include 80 units producing single super phosphate. Major policy initiatives so far March 1977: Subsidies introduced for phosphatic fertilisers.
November 1977: Urea brought under retention pricing.
July 1991: Ammonium sulphate, CAN, ammonium chloride decontrolled; selling prices of all other fertiliers increased by 30 per cent.
August 1992: All phosphatic and potassic fertilisers decontrolled. Urea selling price reduced by 10 per cent. Ammonium sulphate, CAN & ACl brought back under control.
September 1992: Ad hoc concessions announced for phosphatic and potassic fertilisers.
June 1993: Single super phosphate brought under ad hoc concession scheme.
June 1994: Ammonium sulphate, CAN, ACI decontrolled again.
1997: Uniform central pricing announced for all fertilisers except single super phosphate, which will continue to be fixed by the states. Centre to pay 80 per
cent of the concessions directly. Ad hoc concessions for all decontrolled fertilisers increased. Hanumantha Rao committee constituted.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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