Budget 2011 proposes to include capital investment in fertilizer production as an infrastructure sub-sector. That should help fertilizer producers access cheaper financing and gain tax breaks.
Finance minister Pranab Mukherjee also included fertilizer companies in the investment-linked deduction scheme, which allows tax breaks on a major part of capital expenditure.
Also See The net incidence of subsidy in the fertilizer industry has risen sharply from FY05 (PDF)
Besides, the government announced it would consider covering the urea segment under the nutrient-based subsidy regime. This, though, is unlikely to have any near-term impact.
The budget also reduced customs duty on micro-irrigation products and specified agricultural machinery. It also increased interest subsidy to farmers on crop loans. Both proposals should help fertilizer firms and companies catering to the farm sector.
There are other factors that have a bearing on the sector as well. International prices of raw materials and finished fertilizers have increased and that’s a concern, because Indian fertiliser firms import a lot. And the Indian fertilizer sector is characterized by supply-side issues, as production has not shown much improvement over the past few years.
Graphic by Ahmed Raza Khan/Mint