Budget Impact on Fertilizer Sector                

Budget Impact on Fertilizer Sector           (updated - 07 July 2009)
In order to ensure balanced application of fertilizers to increase agricultural productivity, the government intends to move towards a nutrient-based subsidy regime so as to cover larger basket of fertilizers with innovative fertilizer products available in the market at reasonable prices.

Besides, the government also intends to move to a system of direct transfer of subsidy to the farmers.  The system of direct transfer of subsidy to farmers is laudable, but only if competition is allowed amongst fertilizer companies to price their products.

Here the problem arises due to substantial difference in cost of production depending on the feedstock used, like natural gas, regassified LNG, naphtha, other alternate fuels etc.  So, while it was the government which encouraged fertilizer capacity additions through feedstock other than gas, it cannot shy away from its responsibility. 

Also, if Indian fertilizer production comes down and domestic consumption continues to rise, the country may have to pay heavy price of sharp spike in global prices and import in larger quantities at such high prices. 
We have seen this in wheat, sugar, etc, and hope we shall not see it in fertilizers.  How the government achieves this remains to be seen.

Customs duty on rock phosphate was reduced to 2% from 5% earlier. Excise duty on naphtha was also reduced to 14%. Although the lower customs duty and excise duty on rock phosphate and naphtha respectively will enable the fertilizer manufacturers to reduce their production cost, important issues like the timely subsidy payment, measure to attract new investment went unaddressed.

There was also no time slab announced within which the nutrient-based subsidy regime and the direct payment of subsidy to the farmers are implemented. Thus the budget was really a dull affair for the fertilizer sector.

Disclaimer: Information presented on this site is a guide only. It may not necessarily be correct and is not intended to be taken as financial advice nor has it been prepared with regard to the individual investment needs and objectives or financial situation of any particular person. Stock quotes are believed to be accurate and correctly dated, but does not warrant or guarantee their accuracy or date.
Our site takes no responsibility for any investment decisions based on recommendations provided on website.