New Delhi, Oct. 7: Concessions to the fertiliser industry are likely to decline but fertiliser subsidy as a concept will continue in the medium term, rating agency Icra said in a report released here today.
In a performance review of the fertiliser industry during the first quarter of the current fiscal, Ingres, a division of Icra, has said that the government is now tightening the process norms for the fertiliser industry as also pricing mechanisms for attaining process efficiencies in the industry.
The tightening of concessions is to come as a point of departure as the government has all along protected the industry because it has a critical bearing on India’s agriculture-dependant economy.
However, fertiliser subsidy will stay, at least in the medium term, the report said. “With low level of documentation of farm parameters in India, fertiliser subsidy continues to be an effective form of subsidy for the farmer,” said Yogesh Malhotra of Icra.
Fertiliser subsidies are currently classified as farm input subsidies and continue to be within the limits set by WTO (World Trade Organisation).
However, the Icra study says that a differential subsidy provided for higher cost of production to a set of units may get classified as industrial subsidy and therefore may not comply with the WTO rules.
The report suggests that a higher level of import duty can be kept to safeguard the higher cost units. It points out that there may be further change in pricing mechanism for urea producers so as to comply with WTO rules.
The production of ‘straight fertiliser’, mainly urea, increased more than 5 per cent in the first quarter of this fiscal. As against this ‘phosphatic fertilisers’ and ‘complex fertilisers’ registered a sharp drop in production at a rate of more than 30 per cent due to decline in demand.