Given the good monsoon, sharp increase in consumption level coupled with a major jump in international prices, the fertiliser subsidy is expected to shoot up to Rs 75,000 crore in the current financial year as against previous year?s little over Rs 64,000 crore. While welcoming the government?s nutrient-based subsidy (NBS) policy, the same will also help reduce the import quantity, particularly on the phosphatic side. However, lack of capacity addition in urea in the country and its related bottlenecks will keep pressure on the government as well as on the industry. A Vellayan, newly-elected chairman, Fertiliser Association of India (FAI) and chairman, Murugappa Group ? one of the major fertiliser producers in India ? speaks in length on the industry in an interview with FE?s R Ravichandran: Excerpts:

What is your overall perspective of the industry?

The demand for fertilisers in the current financial year will be robust as the country overall received better than expected monsoon. With the projection of 8.5% growth in GDP, the agriculture sector is expected to grow certainly at 4.5%. I don?t see there is going to be a shortage, especially on the DAP and complex fertilisers? side as the government has already taken suitable measures. There are some issues on the urea side ? sharp rise in global prices from $296 a tonne a month ago to $346 a tonne on CFR basis in India; delays in rake (wagons) availability, logistics problems on evacuation of imported materials from ports among other things.

What is your take on on the demand and supply gap in the country?

Though we continue to import to meet our requirements, the import level on the phosphatic side will come down or will stabilise at the existing levels as the government?s new nutrient-based subsidy (NBS) policy will help proper usage of this fertiliser. Moreover, Indian companies are involved in expanding phosphatic capacity than urea as the cost of expansion is minimal and affordable. India produces 44 lakh tonne of phosphatic (DAP), 90 lakh tonne of complex fertilisers and 20 million tonne of urea. Despite the consumption level growing at 4% on an average year-after-year, the required capacity addition has not taken place in a big way. The country continues to depend on imports to meet farmers? requirements. In the current financial year, it is expected that the government may import 85 lakh tonne of DAP, 10 lakh tonne of complex fertilisers and 8 million tonne of urea.

What will be the likely subsidy burden for the government in current financial year?

With the above projection on imports and the sudden spurt in global prices, it is expected that the fertiliser subsidy will go up to Rs 75,000 crore or may be more as compared to little over Rs 64,000 crore incurred during last financial year. The industry is happy over the government?s NBS policy was it will help the government to either maintain the phosphatic imports at the current level or help it reduce the imports going forward despite good monsoon. However on the urea front, it is still miles to go before we become self-sufficient or at least reduce our imports substantially as the cost of 1 million tonne urea/ammonium will require a minimum investment of Rs 4,000 crore as against Rs 700 crore for the similar capacity of phosphatic plant.

What are the impediments for the industry?

I don?t see any major impediments as far as phosphatic fertiliser is concerned till the time it has a long-term raw material tie-up abroad. However on the urea front, cost of feedstocks remain high in the country as compared to overseas markets and no company can afford to invest heavily in feedstocks. Feedstocks like gas is high in India at $5 per mmbtu as compared to $1.5 to $2 per mmbutu in overseas markets. Secondly, the gas is not much available in the country and there is no clear position. Thirdly, some of the regions where strong players are located do not have proper gas pipeline system from oil fields to put up an urea plant.

What are the requiremen-ts/suggestions from your point of view?

As far as phosphatic side, there is no need for any changes. However, the government should give some sort of incentives, proper gas connection and removing logistics constraints, particularly in the southern states, to encourage industry to set up new urea plants as well as enhance capacities. The government should also look into promoting farm techniques, drip irrigation systems, farm mechanisation, usage of more micro nutrients, water soluable fertilisers and conducting regular educational/awareness programmes in a big way to increase the productivity and improve the yields.