Wednesday, March 06, 2013

Deal with its chronic problem of lack of feedstock

After a decadal starvation of investments, Indian fertilizer industry is hot again in the books of investors and seems ready for a great run in the days to come. Before that, it will have to deal with its chronic problem of lack of feedstock.

Moreover, with the food price inflation still pricking the government and the demand for food grains increasing faster than ever, the government has now started taking keen interest in agriculture related sectors including fertilizers. One can understand the same from the very fact that in FY09 the government fully met its humongous subsidy obligation of Rs.1 trillion that accentuated due to a sudden and unprecedented rise in input prices. In fact, explains N. Raju, Analyst, Fitch Ratings India, that in order to keep fertilizer prices under control at the pick of the price cycle and check it from hurting the demand scenario by any means, the government paid for almost 90% of the cost of many categories of fertilizer recovering only 10% cost from the consumers. In a way such secured environment has also contributed to the resilience in the particular sector. As a result, apart from all plans for new plants and capacity expansion, the existing players have started operating at a higher efficiency level than what they were operating earlier. As per reports, on a cumulative basis (including private, public and co-operatives), the Indian fertilizer industry increased its capacity utilisation to 76.9% of installed capacity (84.1% in case of private sector) from 61.2% in the previous financial year (67.1% for private sector). This in turn has resulted in a total production of 16.3 million MT of fertilizer in FY10 (estimated), a surge of 14% over FY09.

Meanwhile, adding an impetus to the on going resilience, the government itself is attempting to revive 5 closed urea plants with an installed capacity of 2.2 million MT. Praising the move, Manoj Gaur, Executive Chairman, Jaypee Group, which has recently joined hands with Duncan Industries to revive the latter’s urea plant in UP, explains, “In order to ensure food security for the country’s 120 billion people, good agri-production has now become mandatory for us. And in this scenario, fertilizer will play a very critical role. Every year we import nearly an average of 7 to 8 million tonnes of urea, while our own plants here are closed. So, revival of these plants and their modernisation for better output is the need of the hour.”


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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