There is something amiss with fertilizers

There is something amiss with the fertiliser industry in India. A look at the basic figures does suggest a mixed bag. Overall, fertiliser production has declined. The most pronounced decline was in Urea production. And since almost 60% of India’s total fertiliser production involves urea, the small percentage does suggest huge savings.

So, why did urea production decline? There are three reasons given. First, there was a decline in demand. Unlike the past, much of urea is currently coated with neem oil (see the Neem Revolution at http://www.asiaconverge.com/2017/07/gnfc-revives-the-glory-of-neem/). That simple exercise makes the diversion of fertiliser for non-farm use quite unattractive.

Second, much of agriculture is gradually shifting away from the practice of scattering urea fertiliser on fields. Most farmers have learnt that by applying water directly to the roots of the plant along with the fertiliser (or pesticide), the rest of the ground does not get sprinkled with fertiliser (when it is scattered). This is a lesson they have learnt from drip irrigation concepts, which agronomists now refer to as fertigation. That, in turn, has two effects: First, plants grow more healthily because they have the right dosage of nutrients planted directly over their roots. Second, since there is no excess fertiliser lying around, it reduces the possibility of leeching of the soil. But the biggest advantage is that the farmer uses less fertiliser (and water) to grow more.

There is a third reason as well to explain the fall in both fertiliser production and fertiliser import. The government’s plans of giving subsidy to the farmers directly through the Aadhaar DBT route has made farmers use urea more sparingly than ever before. In fact, news reports emanating from the government a couple of months ago suggest that — based on the experience gained from the pilot DBT project for fertilisers — the government has decided to launch the Pan-India rollout of DBT in a phase-wise manner across all States/UTs. As on date 19 States/UTs have been brought under DBT System.

Union minister Rao Inderjit Singh is on record stating that under the proposed fertiliser DBT system, 100% subsidy on various fertiliser grades shall be released to the fertiliser companies, on the basis of actual sales made by the retailers to the beneficiaries. Under this scheme, farmers will continue to pay the subsidised price for urea. Sale of all subsidised fertilisers to farmers/buyers will be made through Point of Sale (PoS) devices installed at each retailer shop and the beneficiaries will be identified through the Aadhaar card, KCC, voter identity card, etc. As of January 2018, 85% of the PoS devices had been deployed, 4,482 training sessions have been conducted and around 1.7 lakh retailers have been sensitised across the country.

Together, all the three factors appear to have caused the demand for urea to decline, thus leading to a fall in urea production and import. But this is where worries begin to creep in. First, the entire issue of ghost Aadhaar cards is beginning to spook the industry and economists  (http://www.asiaconverge.com/2018/02/does-aadhaar-identify-or-merely-authenticate/). Could it be possible that in the name of cleaning up the system, ghost Aadhaar card holders could still claim subsidy amounts.

There is a second disconcerting development as well that cannot be ignored. Some of the best names in the industry have decided to pack up their bags and leave the industry. This could signal that not everything is well with this sector. Last year saw both the Tatas and the Adiya Birla group opting to exit from the business of fertilisers. That is not a good sign. Both groups claimed that the time taken to get the subsidy amount reimbursed by the government was a bit too long. But that was just one of the reasons. Neither group has spelt out the other reasons. Of course, their assets were quickly lapped up by other aspirant-entrepreneurs. But the exit of stalwarts does not bode well for the resurgence of an industry.

Then there is the sudden reliance on expanding public sector units to produce fertilisers. This is being done by a government that came to power promising to give the private sector a bigger role. The government has declared that it would be reviving five closed fertiliser plants. Four of them would be units — located at Talcher, Ramagundam, Gorakhpur and Sindri — belong to the Fertilizer Corporation of India Limited (FCIL). One of them is Hindustan Fertilizer Corporation Ltd. (HFCL) in Barauni. This is being done by setting up new ammonia-urea plants with a capacity of 12.7 LMT (Lakh Metric Tonne) per annum. The Government expects that with the commissioning/start of the above plants, the indigenous urea production can increase significantly leading to substantial reduction in imports.

This is being done at a time when the government is talking of disinvestment in PSUs. So why are PSUs being expanded? Equally worrying are the supplementary demands for grants. The government has decided to write off loans and waive interest payable by 3 PSU fertiliser companies for an amount of Rs 20,532 crore. The companies benefiting are those involved in the revival of sick fertiliser units and the commissioning of new fertiliser units. As pointed out by CARE Ratings in its Update of Fertilisers, the proposed write-off was to be reflected in the second batch of Supplementary Demand for Grants for 2017-18. The beneficiaries include Fertilizer Corporation of India Limited (FCIL): Rs 10,643 crore; Hindustan Fertilizer Corporation Ltd. (HFCL): Rs.9,079 crore; and Brahmaputra Valley Fertilizer Corporation Limited (BVFCL): Rs 809 crore.

All of a sudden, the government’s claim of making business easier for the private sector begins to sound tinny. When the best of industrialists abandon an industry and the government decides to push the public sector instead, something is certainly not what was supposed to be. Maybe, the coming year will tell when could be going wrong with this sector.

The writer is a consulting editor with FPJ.