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If I Were FM | A. Vellayan

In the run-up to the Union Budget, A.Vellayan shares his expectations for the fertiliser sector
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First Published: Mon, Feb 18 2013. 11 49 AM IST
A. Vellayan, executive chairman, Murugappa group. Photo: SaiSen/Mint
A. Vellayan, executive chairman, Murugappa group. Photo: SaiSen/Mint
A. Vellayan, executive chairman, Murugappa group
How would I kick start growth?
1) Create two Development Banking Institutions like IDBI which will fund infrastructure and development projects
2) Monetize a small part of the gold reserves and start two funds:
1. Set up a sovereign fund to be used to fund acquisition of scarce resources needed by India, but located abroad
2. A special fund for infrastructure projects that are required, but are not economically viable as of now
3) Develop a comprehensive policy for agricultural development addressing
a) Soil fertility
b) Balanced nutrition
c) Water management
d) Farm mechanization
Action on all the above should be taken with an aim to double the farm yields over the next two years
4) Fast track all projects in coal, iron ore, gas and power along with necessary environmental clearances
5) Nationalise all rivers and waterways and set-up a national grid for power
Expectations from the Union budget 2013 for the fertiliser sector
In formulating the Fertiliser Policy for 2013-14, we look forward to the Union budget 2013 to address the following four issues.
• Issue 1: Ensure adequate availability of fertilisers
• Issue 2: Encourage balanced nutrition in order to enhance soil health thereby leading to increased yield and food production
• Issue 3: Control the overall subsidy bill in order to help reduce the fiscal deficit
• Issue 4: Enhance local production/value addition in the fertiliser sectors or urea and phosphates to reduce the dependence on imports thereby limiting foreign exchange outflow
As for first issue, ie., adequate availability of fertilisers, the outlook is positive for India. Thanks to the NBS policy, both phosphatic and urea are available in plenty. Availability of diammonium phosphate (DAP) complexes and potash are at an all time high. Further, international prices of these commodities are coming down which is good for India. The price of urea has also been at reasonable levels and availability has not been a problem.
The issue of encouraging balanced nutrition in order to enhance soil health is a critical issue which needs to be addressed immediately. As against an ideal nutrient balance of nitrogen-phosphorus-potassium (NPK) of 4:2:1, India had an actual situation of 5:2:1. However, over the last two years, the nutrient balance has deteriorated even further to 8:3:1. This, with the lag effect of one or two years, will affect soil health and lead to lower yield and therefore lower food production.
This has been caused due to the severe price imbalance caused by introduction of nutrient-based subsidy in the phosphatic sector without a corresponding change in urea.
To address this we recommend the reduction in Urea subsidy by Rs.750 per tonne. With this reduction the price of urea will increase by Rs.750, which will to some extent contain the excessive use of Urea.
We also suggest further reduction of subsidy as below
a. Reduction in DAP subsidy by further Rs.2,000 per tonnne
b. Reduction in muriate of potash (MoP) subsidy by further Rs.3,000 per tonnne
c. Reduction in complex subsidy by further Rs.1,500 per tonnne
With declining prices of DAP and complexes we expect the maximum retail price in the phosphatic sectors to also come down by Rs.1,000 per tonne.
Together, the above actions would address the price skew leading to restoring the nutrient balance back to the 09-10 levels of 5:2:1.
In addition, the above reduction in subsidies will also have a substantial saving in the total subsidy bill. Given the expected consumption levels against DAP (90 lmt), MoP (40 lmt), Complexes (90lmt), the subsidy on account of these will be reduced by Rs.4,350 crore. The urea subsidy reduction will reduce subsidy bill by Rs.6,600 crore, leading to a total Rs.11,000 crore subsidy saving.
From a long term perspective, we believe we should follow the model of major agricultural economies like China, Brazil and Australia which have made huge strides in reducing their dependence on imports and are actively encouraging domestic manufacture and value addition. While there will be some elements of imports, the policy for India should be conducive to the development of local industry. Towards this we recommend two initiatives-
a. Encouraging value addition by reducing excise duty on all raw materials and phosphoric acid to near NIL while retaining DAP import duty at 5%
b. Supporting indigenous production of single superphosphate (SSP) by giving the needed freight support to domestic industry. Increased usage of SSP will ultimately reduce imports of DAP
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First Published: Mon, Feb 18 2013. 11 49 AM IST
More Topics: Budget 2013 | If I were FM | A. Vellayan |