Import duty exemption on fertilizer plant equipment proposed

New Delhi: Finance minister Pranab Mukherjee has proposed abolishing the import duty of 5% on equipment used in setting up new fertilizer plants.

He has also allowed fertilizer companies to raise money via external commercial borrowings. A government official said this will reduce the cost of borrowing for operational working expenses, as foreign loans are typically cheaper than domestic loans.

In another move intended to encourage investment in the fertilizer sector, which has not seen any new plant come up since 1995, Mukherjee has proposed to introduce viability gap funding for setting up new factories.

Some of these sops, though, could be offset by the increase in service tax on the transportation of gas, industry executives said. Gas is the main fuel used in urea production and makes up for 70-80% of the cost of production.

“Although gas costs are pass-through and the government takes the entire hit, an increased subsidy burden would delay our subsidy payments, thereby impacting operational expenses,” said Satish Chander, director general of the Fertilizer Association of India, the main industry lobby group.