Addressing the 9th Global Agriculture Leadership Summit on September 8, 2016, chemicals and fertiliser minister, Ananth Kumar proclaimed that neem-coating of all urea supplies meant for use by farmers has resulted in elimination of diversion to chemical industries and smuggling to neighbouring countries.
If, the claim is true, it will have a profound impact on the larger picture of demand-supply balance, self-sufficiency in fertilisers, dependence on import, subsidy pay-out, demand for hydrocarbons especially gas and impact on the environment.
The total consumption of urea is about 30 million tonnes annually, including 22 million tonnes indigenous and 8 million tonnes of imported product. Since, all of this is sold by manufacturers/importers at a low ‘controlled’ price, excess of cost of production/import and distribution is reimbursed to them as subsidy. Subsidy payments are R38,200 crore on domestic and R12,300 crore on imported urea (2016-17).
Given huge gap between price at which urea is available in the international market and its subsidised price on sale to farmers, chemical industries in India and neighbouring countries of Bangladesh, Nepal, Sri Lanka have a strong incentive to grab subsidised urea. Indeed, this is happening on a gargantuan scale. The diversion was estimated to be 30-40%.
Of total urea consumption 30 million tonnes, at 30% the quantum of diversion is 9 million tonnes. But, this could not have been at the cost of farmers as a scenario of their requirements remaining unmet year after year is unsustainable (in fact, unthinkable). In other words, urea consumed by farmers in India is 21 million tonne even as balance 9 million tonnes was meant for use in chemical factories et al (though camouflaged under supplies to former). With this diversion stopped (as claimed), the demand is only 21 million tonne.
The demand could be even lower if one considers the effect of improvement in its use efficiency due to use of neem-coated urea. Even assuming 20% increase in efficiency, farmers can manage with 16.8 million tonne of urea (21×0.8) to achieve same level of crop output. Given domestic production of 22 million tonnes, India would have a surplus of 5.2 million tonnes annually.
There won’t be any need for urea import (as against 8 million tonnes annually at present). This will entail a clear subsidy saving of R12,300 crore (allocation for 2016-17). Add to this further saving of about R7,700 crore due to increase in efficiency of use (R38,200 crore subsidy on domestic urea x 0.2), the total saving in subsidy would be R20,000 crore annually.
Prompted by extant high deficit, the government has been desperately looking for all possible options to increase supply viz., exploring setting up of joint ventures abroad (it is scouting for opportunities in Iran, Qatar, etc, where gas is available in abundance), setting up new projects in India and revival of sick fertiliser plants compelled to rope in even cash rich public sector undertakings (PSUs) from other sectors viz., oil, power and coal such as IOCL, NTPC, CIL (e.g., early this year, the cabinet approved revival projects of Sindri and Gorakhpur under Fertiliser Corporation of India Limited with the help of these PSUs). This can be avoided in a changed scenario of surplus.
About 2 million tonnes of urea is imported from a joint venture viz., Oman India Fertilizer Company (OMIFCO) that IFFCO/KRIBHCO—companies in cooperative sector in India—have with Oman Oil Company (OOC) under buy-back arrangements. With indigenous production comfortably place to meet demand, a JV can avail of opportunities in international market fetching better price and returns from investment in that project.
India is hugely short of gas, feedstock used in urea manufacture. Due to this, the industry is forced to import one-third of its gas requirements. Faced with a favourable supply-demand scenario (courtesy neem-coating), the industry can not only avoid increasing dependence on imported LNG but also, reduce current level of import. It can also help in releasing more gas for the fuel starved power sector.
At present, the environment-related problems are in no small measure, due to excessive use of urea and wastage of nearly two-thirds of applied urea via evaporation in to atmosphere or leaching in to soil and water. With neem-coating, much of this wastage will be reduced yielding extra income to farmers (due to reduced spend on fertilisers) on one hand and causing less of environment damage on the other.
Ananth Kumar promises to make India self-sufficient in fertilisers in the next five years. Why wait that long? If, claims made by Team Modi prove true, then we have already achieved it in urea segment along with huge saving in subsidy plus more income for farmers and less damage to environment.
But, everything hinges on how genuine these claims are.
The author is a policy analyst