CHAIRMAN’S SPEECH
H. C. Grover
Chairman
The Fertiliser Association of India, New Delhi
Hon’ble Minister for Chemicals, Fertilizers and Steel, Mr. Ram Vilasji Paswan, Mr. Madhukar Gupta, Secretary, Deptt. of Fertilizers, Vice Chairman (FAI), Mr. P.S. Grewal, Director General (FAI), Mr. B.K. Saha, your Excellencies, distinguished Delegates, Invitees, Ladies and Gentlemen.
It gives me immense pleasure to extend a hearty welcome to you all to this year’s Seminar. In particular, we express our deep gratitude to you sir, Mr. Paswanji for being with us and inaugurating this Seminar despite his pre-occupation with Parliament which is in session.
During the last decade or so the country has seen unprecedented economic growth, though at times the rates of growth have fallen short of targets. India has emerged as a brand name in many fields and is identified as a source of technologically skilled and well trained manpower. Unfortunately, the agricultural sector seems to have been left behind, if not forgotten in the process. With nearly two-thirds of the country’s population dependent on agriculture, can we afford to let the situation continue where the rest of the country, let us call it the urban economy, progresses at a growth rate of about 7-8%, while the agricultural sector is continually being left behind due to a meagre growth rate of below 1.5%? The situation is one that should worry all of us because it has severe implications for all. Agriculture is the mainstay of not only the majority of our population but also the base of our food security and the source of many industrial raw materials. The rural population dependent on agriculture are major consumers of industrial products. Hence, if conditions of civil unrest are to be avoided and the economy as a whole is to move forward in all sectors, more so the agricultural sector, we have to keep moving forward at rates of growth which improve the well being of all.
It is this concern that has prompted us in the fertiliser sector to choose the theme “Economic Growth through Agriculture and Fertilisers” for this year’s Annual Seminar which also happens to be the Golden Jubilee Year of FAI. Fertiliser is not simply about improving crop yields to meet the demands of a growing population. Fertilisers are only next to water and genetically improved seeds in their importance for growth of agriculture and higher farm incomes. The “Green Revolution” brought considerable improvement in agricultural incomes and was driven by two major factors, viz., (i) rapid increase in the area under irrigation and (ii) increased availability at affordable prices and consumption of fertilisers. The new varieties were responsive to water and fertilisers, unlike the traditional varieties, which even with higher dosages of fertilisers and adequate availability of irrigation, would not have given high yields. High yielding varieties take up far more nutrients and hence it is absolutely essential to keep replenishing them. If this is not done the soil gets degraded. Not the other way round. It is essential to correct the misconception that use of chemical fertilisers degrade the soil by impoverishing it. What is really happening on the Indian agricultural scene is that the total removal of nutrients from the soil is far in excess of what is being replenished through application of fertilisers and other forms of manures thus leading to the degradation of the soil. Further, secondary and micro nutrients have not found place in our agricultural policy, or, at best given lip service. There is no definite policy to encourage and promote the use of micro-nutrients. There is enough scientific evidence that the use of micronutrients like zinc, boron, iron, etc. and also secondary nutrients like sulphur not only increases yields but also improves the nutritional value of the crop as these also provide nutrients essential for the human body. This fact has to be convincingly communicated to the farmers and policy makers in order to promote balanced and scientific use of fertilisers.
The policies during the last decade, as far as agriculture is concerned, have not given due attention to investment in agricultural infrastructure viz.., irrigation, power, storage, processing, marketing facilities, etc. The major organizational foundation on which the success of the Green Revolution was based was the system of agricultural extension which has now almost ceased to exist. Farmers do not have adequate reliable and assured source of technical information specifically related to their needs. This entire system has to be rejuvenated and strengthened to adequately cover the entire country including the un-irrigated areas. Fertiliser industry is doing considerable work in this field. However, considering the magnitude of the requirements, more initiative and push is needed on a “Public-Private Partnership” basis, wherein both Govern-ment and the industry work together and concentrate on this crucial field.
Having brought out the urgency for accelerating agricultural growth, the question arises as to how to achieve it? The use of fertilisers has a crucial role in realizing this goal. With the limited availability of land and water resources, agricultural production can only be increased by increasing the crop yields through balanced and integrated use of fertiliser nutrients along with other inputs which in turn increases the net farm income.
However, the domestic fertiliser industry is currently passing through a very difficult and uncertain phase. If the plight of the domestic fertiliser industry is not seriously addressed, it may prove to be a stumbling block in achieving the targeted growth of 4% in agriculture. The Working Group on Fertilisers for the 10th Plan period has rightly observed that a vibrant fertiliser industry is central to the food security of the country. According to a recent study, a 10% increase in fertiliser use which increases the cost of cultivation by only about 1% can increase farm income by about 3.23% due to increase in crop productivity. This underlines the importance of fertilisers and that of the domestic fertiliser industry in achieving the overall agricultural targets.
There has been much debate about the true beneficiaries of fertiliser subsidy. As far as farmers are concerned, there is no target group for subsidised fertilisers, since it is a subsidy on production. Currently, Fertiliser Industry is saving a considerable amount of money of the government by producing fertiliser at the cost which is much lower than the cost of imported fertilisers. For instance, as per the current price trends, the farm gate cost of imported urea works out to about Rs.14,000 per tonne as compared to the weighted average farm gate cost of domestic urea at about Rs.10,400 per tonne. This means that the Government is saving about Rs. 3,600 per tonne of urea produced by the domestic industry. This translates into a saving of nearly Rs.7000 crore per annum. The cost of domestic urea during the current year is likely to be lower due to more gas being available which means a still higher saving.
Similarly, in the case of DAP, the rate of concession on imported DAP is higher by Rs. 848 per tonne compared to that for domestic DAP. Thus, domestic DAP saves a considerable amount of subsidy for the Government apart from the multiplier effects of an industry, and above all, making fertilisers available at right time at the right place.
Coming to the pricing policy for urea, I would like to mention that while conceptually the changeover to the New Pricing Scheme (NPS) was on the right track in moving away from the Retention Pricing Scheme, which was based on individual unit pricing, to the concept of group pricing, several factors were introduced while going into the nuts and bolts of its implementation, with the sole objective of cutting subsidy which went against the basic principles of group pricing. This jeopardized the viability of the industry. In fact, it would not be an exaggeration to state that the effect negated the stated objective of viability. Freezing and disallowing several components of the cost of manufacture and sale led to large amounts not being paid to the industry even after accepting that these expenditures were actually incurred. The result was that the industry suffered an under-recovery of the order of about Rs.2500 crore for the first two years of the NPS. The provision of group pricing got negated by imposing the condition of group average or actuals whichever is lower. The only purpose that the concept of group averaging seems to have served was to reduce the concession payable to some units while the majority continued with their individual prices. Without going into details, it may be relevant to point out that legitimate expenses were disallowed on several counts without any rationale or concern for the viability of the industry.
The so called decontrolled P and K segments have also suffered due to recent policy changes which have disallowed several items of cost, again with the same objective of reducing subsidy which has seriously affected the viability of these segments.
The SSP segment has been a victim of neglect for long which has made it almost sick with several plants closing down and decline in production and capacity utilisation of the remaining plants. Though some relief has been given recently, thanks to your efforts Sir, by increasing the subsidy by Rs. 325 per tonne, it is inadequate to cover the entire increase in cost. The Government should formulate a policy for SSP in line with the other phosphatic fertilisers with provisions for quarterly escalation and de-escalation in the rate of concession to take care of the changes in the cost of inputs and restoring the power to fix the maximum retail price to the Centre. Such a step will be a subsidy neutral. Because, it will only replace the imported DAP. In view of the widespread sulphur deficiency in Indian soils, a sustainable growth in production and consumption of SSP is essential not only for overcoming sulphur deficiency but also for improving the nutrient uptake efficiency of other nutrients, as SSP contains 11% sulphur in addition to phosphate.
In order to reduce the burden of subsidy, the policy parameters have been tightened stringently in the recent years. However, the burden of subsidy has not been reduced as the issues relating to pricing and availability of feedstock and the MRP of urea still remain unaddressed. It is unfortunate that, having failed to rein in the hydrocarbon sector in spite of being the monopoly owner and also having failed to increase the MRP of fertilisers due to the socio-economic reasons, the Government zeroed in on the industry to reduce subsidy. The cost of gas which is the normal feedstock in the urea exporting countries is about one US Dollar per million BTU or even less in comparison to the cost of APM gas in India at about 2.6 to 3 US Dollars per million BTU. The costs of other feedstocks on which a substantial quantity of Indian urea production is based are much higher at about 13 to 15 US Dollars per million BTU for naphtha, 8 to l0 US Dollars per million BTU for fuel oil/LSHS and 4 to 5 US Dollars per million BTU for imported LNG. If the Government can ensure supply of energy at the rates comparable to those prevailing in the urea exporting countries, the domestic urea industry can produce urea at the cheapest rate in the world because of the world class operational efficiencies that this industry has achieved.
The availability and prices of gas are not only important for the survival and competitiveness of the existing urea units but it is also equally important for conversion of non-gas based units to gas/LNG and also for capacity addition in the future. However, the fertiliser industry on its own cannot resolve these issues without the support of the Government as has been experienced in the past when all efforts of the industry failed to procure gas/LNG at reasonable rates. The priority allocation of APM-gas in adequate quantity to the fertiliser sector is not only justified on the ground of its maximum economic utility in the fertiliser sector, which uses both the chemical and heat value of gas but also on the ground of reducing the subsidy burden of the Government. Higher cost of gas or other feedstock directly increases the subsidy burden of the Government, as it cannot be passed on to the consumers the MRP being controlled by the Government. Whereas, in the case of other industries it can be recovered from the consumers by increasing the prices. While talking about the subsidy, I take the liberty of what Dr. Swaminathan mentioned earlier that the subsidy should rather be called as life-saving support for the poor farmers.
An important factor which has contributed to increasing the cost of manufacturing fertilisers and, consequently, the burden of subsidy, is the levy of various taxes and duties on inputs used in the manufacture of fertilisers. Some of the fiscal measures that needs immediate attention of the Government include removal of excise duty on fuel Oil/LSHS used for non-feed purposes in urea manufacture, withdrawal of customs duty on all the inputs required to manufacture fertilisers. Indigenous supplies of capital goods to fertiliser projects to be set up during 10th Plan period and beyond needs immediate attention of the Government and should be granted deemed export benefits. Some of the fiscal measures taken by the Government direct-increasing the subsidy. As a matter of fact, the levy of taxes is counter-productive. Because what you levy as taxes, if the collection is less, you pay as a compensation to the industry. This happens because, to the industry you not only pay what the industry pays as taxes but the burden of increased working capital.
Apart from the pricing related issues, the fertiliser industry has also been suffering due to delay in announcement of the rates of concession and delay in disbursement of subsidy/concession for various reasons particularly due to inadequate provision in the Budget. The sign of inadequacy of funds has started reflecting during the current year also. As per the industry’s estimate, requirement of additional funds over the budget allocation required for 2005-06 would be of the order of Rs.6000 crore. We hope, the Government will pro actively allocate additional funds towards fertiliser subsidy during the winter session of the Parliament itself to avert the payment crisis as suffered during the previous years.
We are the second largest consumer of P2O5 in the world despite the fact that the availability of the basic raw materials for producing phosphatic fertilisers is practically nil. In Nitrogen consumption also, our ranking in the world is third, next only to China and USA. It is also a fact that except for our reserves of coal, we are short of energy, particularly hydrocarbons, and our energy costs are much higher than in the oil and gas rich countries like the Middle East and Russia. Despite these severe handicaps, we are the third largest producer of P2O5 and second largest producer of Nitrogen in the world. The justification for having such a large local production is mainly the size of our market. The size of our fertiliser market and the country makes it imperative for us in our own interest to remain viable, vibrant and growing domestic fertiliser industry despite the handicaps of high energy cost and non-availability of raw materials for producing phosphatic fertilisers.
The needs of Indian farmers have, therefore, to be met primarily through local production. We cannot depend upon the volatile international market. Over dependence on the international market could lead to serious implications from the point of view of both availability and cost. The socio-economic conditions under which Indian agriculture operates makes it necessary that the Indian farmer gets the fertilisers in time and at affordable prices. This is possible only if there is a healthy and growing domestic industry. In spite of the severe handicap of high cost of energy and dependence on costly imported inputs for phosphate, the domestic industry has produced both DAP and urea at costs below the international prices which underlines the levels of efficiency achieved by it. We can increase our dependence on imports of finished fertilisers only at our own peril. Given the fact that the vast majority of Indian farmers consume what they produce, fertiliser subsidies are inescapable and has to be seen as a part of agricultural subsidies in general or the life saving support of Indian farmers, as mentioned by Dr. Swaminathan. If a healthy domestic industry is to be sustained in this scenario the compensation paid by the government must be based on rational principles and ensure a reasonable return comparable with other sectors of the economy. Fertiliser Industry must be treated as an industry The prices received by the industry must not be linked to the consumer price which is determined on factors unrelated to the cost of production. The burden of increasing costs of production due to inflation and international market situation should not be passed on to the industry.
Our long-term pricing policy must take these facts into account and at the same time, ensure that the Indian fertiliser industry does not function in isolation and gets integrated with the global market. A suitable mechanism for benchmarking the local price after taking into account the inherent handicaps referred to earlier must therefore be worked out for achieving these objectives. We look forward to the government evolving innovative and pragmatic policies which will ensure the sustainability and health of the Indian fertiliser industry and at the same time provide a level playing field to face international competition. While the market forces will promote efficiency, ensure production at the best achievable costs and provide much needed service to the Agricultural community, let me assure you the industry will spare no effort to achieve the highest levels of excellence in all aspects, including service to agriculture.
Against this backdrop, the FAI Seminar this year has been devoted to the theme of Economic Growth through Agriculture and Fertilisers. The deliberations during the Seminar would cover various aspects of agriculture and the fertiliser sectors with a view to work out strategies for increasing farm incomes to accelerate the overall rate of growth of agriculture and consequently, the economic growth of the country. It will also cover the technical, agronomical and marketing aspects of fertilisers.
I am sure the deliberations during the next two days will generate useful suggestions/recommendations to resolve the problems facing Indian agriculture and the fertiliser sector. With this hope and expectation, I now welcome you all once again to the deliberations of the Seminar.
Finally, I would like to place on record my deep appreciation to the officers and staff of FAI for their arduous and untiring efforts in organizing a Seminar of this magnitude.
Thank you .