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A detailed understanding of the fertilizer industry pre and post liberalization in India, implications of the WTO, its growth and future projections.


Fertilizer can be described as any substance, organic or inorganic, natural or artificial, which supplies one or more of the chemical elements required for plant growth. According to experts sixteen elements are identified as essential elements for plant growth, of which nine are needed in larger quantities and seven elements are required in smaller quantities.

Carbon, oxygen and hydrogen are directly supplied by air and water and therefore not treated as nutrients by the fertilizer industry.

Indian Fertilizer Industry
Indian Fertilizer industry is one of the vital industries for the Indian economy, since it manufacturers a very critical raw material for agriculture. The fertilizer industry especially the ammonia urea plants are energy demanding in their operation.

The main objective of the fertilizer industry is to ensure the supply of primary and secondary nutrients in the required quantities.

The fertilizer industry in India has performed a vital role in enabling the necessary increase in the use of plant nutrients for achieving the objectives of self sufficiency in food grains production and accelerated and continuous agricultural growth.

The fertilizer industry which is one of the most energy intensive sectors is very important from the context of environmental discussions. Due importance to increasing productivity through the implementation of competent and pollution free technologies in the manufacturing sector would be most desirable in combining economic, environmental and social development objectives.

Pre Liberalization
In India the per hectare consumption of fertilizer in 1950-51 was less than 1/4th of the global average. Production was by and large in the purview of public sector and co operative sector.

In 1977 the government introduced the Retention Price Scheme (RPS) with the goals of providing fertilizers to farmers at reasonable rates without affecting the profitability of the manufacturers. Under this policy the government would pay the manufacturers, the difference between the administered price (sale price) and the retention price (cost of production).

Over and above the retention price subsidy, the equated freight subsidy was introduced to enable the manufacturers to cover the cost of transportation.

Post Liberalization
The policy of economic liberalisation has its effect on the fertilizer industry too. The government in a move aimed at reducing subsidy, decontrolled all the phosphatic and potassic fertilizers in 1992.This strained the ratio of fertilizer utilization. With this policy of liberalization, the retention pricing scheme (RPS) which had been introduced in 1977, got confined only to urea.

Post liberalization, the government strategized a long term fertilizer policy to be completed in three different phase, beginning in 2000-01 and ending in 2006-2007.

Phase 1: 2000-01 and 2001-02
  • Evaluate existing capacity.
  • Increase in urea prices from time to time.
  • Evaluate the possibility of a coal based expertise.
  • Promote joint ventures.
  • Finalize policy on fertilizer pricing and capacity enhancement.
  • Eliminate distribution controls on urea and augment concession scheme to bio fertilizers.
Phase II (2002-03-2003-04)
  • Finalize decision on feedback.
  • Long term strategy of increased capacity.
  • Decide on extent of protection to local industry.
  • Eliminate MRP and encourage productive investment.
  • Reorganize the association between the industry and farmers.
  • Judicious utilization of fertilizer and greater emphasis on eco friendly fertilizer.
  • Establish Fertilizer Policy Planning Board.
Phase III (2004-05-2006-07)
  • Removal of MRP
  • Define government's role in decontrol setup and with respect to policy relating to LNG.
W T O Implications
  • The restriction on quantity of fertilizers to be imported has been eliminated from April 1, 2001.The proposed plan to establish a tariff rate quota (TRQ) for the import of urea has been deferred.
  • The Government has planned to impose a higher tariff of 150-200 per cent on imported urea in future. This would lead to increase in prices of imported urea and be detrimental to the demand supply gap which is likely augment in future.
Future Trends
  • India's demand for fertilizers in 2007-08 was 26 MM tons, which went up to 29 MM tons in 2008-09 against a supply of 20 MM tons in 2008-2009.
  • The demand for fertilizers in 2011-12 is forecasted to be around 35.5 MM tons.
  • More fertilizer projects are in the pipeline.
  • Gujarat is expected to play a leading role in fertilizer production.
  • Indian companies have penetrated the overseas market, signaling a new phase for the industry.

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