1.1      Optimum fertilizer application plays a key role in improving the productivity of various crops. it is a critical input to the strategy for self-sufficiency in foodgrains to feed a rapidly growing population. Concerted efforts in this direction have resulted in a substantial increase in agricultural production and productivity. From a modest level of 52 million tonnes in 1951-52, the foodgrain production during 1994-95 is estimated to have gone up to 191 million tonnes. Despite a marginal decline in the output during Kharif 1995, the foodgrain production in 1995-96 may yet attain the same level. The increase in fertilizer consumption has contributed significantly to a progressive improvement in the production of foodgrains in the country.

1.1.2 Although the average per hectare consumption of fertilizer nutrients has increased from less than 1 Kg. in 1951-52 to about 74 Kg. in 1994-95, even this level of fertilizer use is low with reference to the consumption levels prevailing in other countries, including some of the developing countries in Asia, and the need to increase foodgrains production at a faster pace. Moreover, the consumption of chemical fertilizers in the country is unevenly distributed, being much higher in regions with assured irrigation. In view of the limited scope for increasing the land area under cultivation, further increases in agricultural production can be achieved only through better water management, expansion of the area under irrigation, improved farming practices, research and development in the use of scientific inputs & seeds, and last but not the least, more extensive and balanced use of fertilizers through fertilizer education. Hence, the critical importance of the fertilizer sector in the Indian economy, especially in creating a prosperous rural base.

GROWTH

 1.2.1  The Indian fertilizer industry has been supplying a substantial portion of the growing demand of fertilizers. It had a very humble beginning in 1906, when the first manufacturing unit was set up in Ranipet near Madras with a production capacity of 6000 tonnes of Single Superphosphate per annum. The Fertilizer and Chemicals Travancore Ltd. (FACT) at Cochin in Kerala and the Fertilizer Corporation of India Ltd., Sindri in Bihar, were the first large sized fertilizer plants to be set up after the Second World War and in the early years of independence with a view to establishing a base for industrialization and achieving self-sufficiency in foodgrains. The Green Revolution in the late sixties gave an impetus to the growth of the fertilizer industry in India. The Eighties witnessed a significant addition to the fertilizer production capacity.

1.2.2 The installed capacity has now reached a level of 93.06 lakh tonnes of nitrogen (inclusive of an installed capacity of 169.02 lakh tonne of urea) and 28.22 lakh tonnes of phosphate nutrients, making India the third largest fertilizer producer in the world. The rapid build-up of fertilizer production capacity in the country has been achieved as a result of a favourable policy environment and heavy investments made over the years in the public, cooperative and private sectors. Today, there are 59 large size fertilizer plants in the country, manufacturing a wide range of nitrogenous, phosphatic and complex fertilizers. 9 of the units produce ammonium sulphate as a by-product. Besides, there are about 80 medium and small scale single superphosphate units. The sector-wise installed capacity is given in the table below

SECTOR-WISE, NUTRIENT-WISE INSTALLED CAPACITY OF FERTILIZER AS ON 31.3.96

SECTOR-WISE INSTALLED CAPACITY OF UREA AND ITS PERCENTAGE SHARE AS ON 31.03.96

SELF-SUFFICIENCY

1.3.1 Of the three main nutrients required for various crops - nitrogen, phosphate and potash, indigenous raw materials are available mainly for nitrogen. The Government policy has aimed at achieving the maximum possible degree of self-sufficiency in the production of nitrogenous fertilizers based on utilisation of indigenous feedstocks. As of now, the country is self-sufficient to the extent of about 80% in the case of nitrogen. Prior to 1980, nitrogenous fertilizer plants were based mainly on naphtha as feedstock. A number of fuel oil based ammonia-urea plants were also set up during 1978 to 1982. In 1980, two coal based plants were set up at Talcher (Orissa) and Ramagundam (Andhra Pradesh) for the first time in the country. With associated and free gas becoming available from off-shore Bombay High and South Bassein basins, a number of gasbased ammonia-urea plants has been set up since 1985. Two projects for expansion of the gasbased plants of Indian Farmers Fertiliser Cooperative Ltd.,Aonla (UP) and National Fertilizers Ltd. Vijaipur (MP), which are under implementation, are to be commissioned by the end of the year. These projects would create an additional capacity of 14.52 lakh tonnes of urea (6.68 lakh tonnes of nitrogen) per annum. Also under implementation is an expansion project for doubling the capacity of the gas based Kakinada plant of Nagarjuna Fertilizers & Chemicals Ltd., with a nameplate capacity of 4.95 lakh tonnes of urea per annum (2.28 lakh tonnes of nitrogen). This plant would be based partly on gas and partly on naphtha. In addition, in view of the limitations on availability of gas, a number of expansion projects have been taken up with naphtha as feedstock, with the flexibility for switching over to gas as and when it is available.

1.3.2 In the case of phosphates, the paucity of domestic row material constrains the attainment of any degree of self-sufficiency. Recognising this, a deliberate policy-mix has been adopted which involves the modulation of three options : i) domestic production based on indigenous/imported rock phosphate and imported sulphur ii) domestic production based on imported intermediates, viz. ammonia and phosphoric acid and iii) import of finished fertilizer, viz. Di-Ammonium Phosphate (DAP) and very rarely, MonoAmmonium Phosphate (MAP) and Nitrogen Phosphate Potash (NPK) complexes. Roughly 70% of the requirement of phosphatic fertilizers is met through the first two options. Since indigenous rock phosphate supplies meet only 5 -10% of the total requirement of P₂0₅' phosphatic fertilizers produced in the country are essentially based on imported raw materials and intermediates.

1.3.3 As regards potassic fertilizers, there are no known commercially exploitable reserves of potash in the country and per force, the entire requirement of these fertilizers is met through imports. Even in the case of complex fertilizers containing potash, the potassic content is entirely import based.

TECHNOLOGICAL ADVANCEMENTS

1 .4 For a vast country iike India with a very large requirement of chemical fertilizers, self-reliance in technology, design engineering and project execution activities is as important as autonomy in fertilizer production. This requires development of a strong indigenous technological base in planning, development of process know-how, design and engineering, as also project management and commissioning activities. The Government has been encouraging and supporting research & development and design/engineering activities in the fertilizer sector alongside the establishment of fertilizer plants. As a result, Indian consultancy organisations, which have grown steadily in tandem with the fertilizer industry, can undertake complete jobs starting with feasibility studies, basic and detailed engineering, to procurement, construction and project management. This process has been accompanied by enhanced indigenous manufacturing capability in equipment, piping and instrumentation. The gaps in technology are being filled by import of modern technology. Indigenous capability has also been developed for production of a wide range of catalysts required in the fertilizer plants. Likewise, expertise has been acquired for undertaking detailed health surveys of plants and equipments by modern and sophisticated non-destructive testing methods, so as to facilitate preventive repairs and replacements.

FERTILIZER PRICES AND SUBSIDY

1.5.1 At present, only urea, which is the main nitrogenous fertilizer constituting about 60% of the total fertilizer consumption in the country, is under statutory price control. Following a 20% increase with effect from 10.6.1994, the farmgate price of urea has been fixed at Rs. 3320 per tonne, excluding local levies. Notwithstanding this increase, the Indian farmgate price of urea is amongst the lowest in the region and is heavily subsidised in order to provide farmers with limited resources and land to have access to its use.

1.5.2 In order to compensate the manufacturers for lower realisation because of price control, the difference between the retention price (normative cost of production of the unit as determined by the Government, plus 12% post-tax return on net worth) and the notified sale price minus the distribution margin is paid as subsidy to the individual manufacturing units under the Retention Price-cum-Subsidy Scheme (RPS). A freight subsidy is also paid to the individual units to cover the cost of transportation of fertilizers from the production points to the consumption centres. Since there is a uniform issue price both for indigenous and imported controlled fertilizers, the difference between the delivered cost of imports and the issue price (reduced by distribution margin) is borne by the Government as subsidy.

1.5.3 The Retention Price-cumSubsidy Scheme (RPS), which was introduced in 1977, proved its worth by stimulating production and use of fertilizers, contributing thereby to the development of agriculture in the country. The cost of the scheme to the Government in terms of subsidy payments, which was a modest Rs.25 crore to start with, has over the years gone up to over Rs.6000 crore. During 1994-95, the total subsidy borne by the Government on controlled fertilizers was of the order of Rs.5241 crore (Rs. 4075 crore for indigenous and Rs. 1166 crore for imported fertilizers). The subsidy outgo in 1995-96 went up to Rs. 6235 crore (Rs. 4300 crore for indigenous and Rs. 1 935 crore for imported fertilizers).

1.5.4 Apart from the subsidy on controlled fertilizers, there is a scheme of special concession on sale of decontrolled fertilizers being implemented by the Department of Agriculture & Cooperation. Under this scheme, a concession of Rs. 1000 per tonne on imported Muriate of Potash (MOP) and indigenous DAP, and a proportionate concession on indigenous complex fertilizers and single superphosphate (SSP) is admissible. During 1994-95, payments amounting to Rs. 514.02 crore were made to the manufacturers of phosphatic fertilizers and importers of Muriate of Potash (MOP). The provision in 1995-96 was Rs. 500.00 crore. The concession on decontrolled fertilizers has been extended with a view to encouraging the farmers to optimise the use of phosphatic and potassic fertilizers and to adopt balanced fertilization.

1.5.5 In order to enable the domestic industry to reduce the cost of production and remain competitive vis-a-vis the imported products, the special concession on phosphatic fertilizers has been restricted to indigenous products. The customs duty on import of phosphoric acid, the main intermediate used in the manufacture of DAP, was abolished in September, 1992. Import substitution incentives are also being given on the use of indigenous rock phosphate and iron pyrites.

1.5.6 As a long-term measure to reduce the capital cost of fertilizer plants, the customs duty on capital goods imported for setting up new fertilizer plants as well as renovation and modernisation of existing plants was abolished in September, 1992. Besides, Government has also introduced a scheme for interest rate concession upto a maximum of 3% on long-term loans for establishing new fertilizer projects and revamping existing plants.