Introduction

1.1.1 Optimum fertilizer application plays a key role in improving the productivity of various crops. It is a critical component of the strategy for self-sufficiency in food grains to feed a rapidly growing population. Concerted efforts in this direction have resulted in a substantial increase in food grain production, which rose from the level of 52 million tonnes in 1951-52 to about 206 million tonnes in 1999-2000. The increase in fertilizer consumption has contributed significantly to such improvement in the production of food grains 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 95.6 Kg. in 1999-2000, even this level of fertilizer use is low with reference to the objective of accelerating the growth in the agriculture sector, as wall as the consumption level prevailing in other countries, including some of the developing countries in Asia. 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 growth in agricultural production can be achieved only through better water management, expansion of the area under irrigation, improved forming practices, research and development in the use of scientific inputs and seeds and last but not the least, more extensive and balanced use of fertilizers, Thus, there is 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 Chennai with a production capacity of 6000 Metric Tonne (MI) of Single Superphosphate per annum. The Fertilizer & Chemicals Travancore Ltd. (FACT) at Cochin in Kerala and The Fertilizer Corporation of India Ltd. at Sindri in Bihar, were the first large sized fertilizer plants to be set up in the forties and fifties 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' as on 1.12.2000 has reached a level of 11668 lakh MT of nitrogen (inclusive of an installed capacity of 205.45 lakh MT of urea) and 46.35 lakh MT of phosphatic nutrients, making India the third largest fertilizer producer in the world, The rapid build-up of fertilizer production capacity in the country has boon achieved as a result of a favourable policy environment and heavy' investments made over the years in the public, co-operative and private sectors. Today, there are 65 large sized fertilizer plants in the country ~including seven (7) major urea plants in which production had to be discontinued for reasons of safety/feedstock limitation, non-viability or financial constraints], manufacturing a wide range of nitrogenous, phosphatic and complex fertilizers. Nine (9] of the units produce ammonium sulphate as a byproduct. Besides, there are about 79 medium and small-scale single superphosphate units. The sector-wise installed capacity is given in the table below:

Sector-wise and Nutrient-wise Installed Capacity of Fertilizer Manufacturing Units, as on 1.12.2000

Sector-wise Installed Capacity of Urea Production, as on 1.12.2000

Self-sufficiency

1.3.1 Of the three main soil nutrients namely, nitrogen, phosphate and potash required for various crops, indigenous raw materials are available mainly for nitrogen. The Government's policy has aimed at achieving the maximum possible degree of self-sufficiency in the production of nitrogenous fertilizers based on utilisation of indigenous feedstock. This is desirable in view of strategic considerations as the international urea market is highly volatile to demand supply scenario, As of now, the country is self-sufficient to the extent of about 94% 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 1952. In 1980, two coal-based plants were set up tar the first time in the country at Talcher (Orissa) and Ramagundam (Andhra Pradesh), With associated and free gas becoming available from offshore Bombay High and South Bassein basins, a number of gas based ammonia-urea plants have been set up since1985. In view of limited availability of gas, a number of expansion projects have been taken up in the last few years with naphtha as feedstock with the flexibility for switching over to gas as and when it becomes available. Feasibility of a delivery system of Liquefied Natural Gas (LNG)to meet the demand at fertilizer units and projects is also being explored.

1.3.2 In case at phosphates, the paucity of domestic raw 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 Mono-Ammnnium Phosphate (MAP) and Nitrogen-Phosphate-Potash (NPK) complexes. Roughly 66% 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 P2O5, phosphatic fertilizers produced in the country are essentially based on imported raw materials and intermediates.

1 3.3. There are no known commercially exploitable reserves of potash in the country I and per force the entire I requirement of potassium fertilizers for direct application as well as for production of complex fertilizers is met through imports.

1.3.4 ln order to bridge the gap between demand and domestic availability, The country may have to continue to depend on imports of urea, phosphatic and potassic fertilizers, due to inadequate availability of indigenous raw-material.

Technological advancements

1.4.1 lndia is one of the largest producers and consumers of chemical fertilizers in the world, To meet the growing demand of fertilizers in the country through optimum indigenous production, self-reliance in design engineering and execution of fertilizer projects is as important as autonomy in fertilizer production. This requires a strong indigenous technological base in planning and development of process know-how, design engineering and expertise in project management and execution of the project. As a sequel to the continuing support of the Government for research and development as well as design engineering activities over the years, lndian consultancy organisations in the field of fertilizers have grown steadily in tandem with the fertilizer industry, These consultancy organisations are today in a position to undertake execution of fertilizer projects starting from the stage of conceptualising to commissioning of fertilizer plants,

1.4.2 The fertilizer plant operators in the country have now fully absorbed and assimilated the latest in fertilizer technology and are in a position to operate and maintain the plants at their optimum levels without any foreign assistance.

1 .4.3 The country has also developed expertise for fabrication and supply of major critical equipment like high pressure vessels, static and rotating equipments, heat exchangers etc, required for fertilizer projects, The indigenous vendors are in a positron to compete and secure orders for such critical equipment and distributed control system (DCS) under international competitive bidding procedure. Presently in fertilizer plants, above 70% of the equipment required for a major fertilizer plant are manufactured indigenously

Fertilizer prices and subsidy

1.5.1 The sale prices of controlled fertilizers ore fixed by the Government of India (Department of Agriculture & Cooperation) under the Fertilizer (Control) Order, 1 985 issued under the Essential Commodities Act, 1955. At present, only urea, which is the main nitrogenous fertilizer constituting about 56% of the total fertilizer consumption in the country is under statutory price control. The farmgate price of urea which is fixed at Rs. 4600 per tonne w,e,f, 29.2.2000, excluding local levies, is amongst the lowest in the world and is heavily subsidized.

1.5.2 The difference between the sole price and the retention price (the cost at production as assessed by the Government plus reasonable return on net worth) is paid as subsidy to the individual manufacturing units under the Retention Price-cum-Subsidy Scheme (RPS), The cost of production of various fertilizer units differ from unit to unit and even from month to month, depending upon the health and vintage of the plant, the feedstock used, the levels of capacity utilisation, energy consumption, distance from the source of feedstock/raw materials, cost of inputs, etc. In addition to the retention price subsidy, equated freight subsidy is paid to the manufacturers of controlled fertilizers to cover the cost at transportation from production points to consumption centres. Since the consumer prices of both indigenous and imported fertilizers are fixed uniformly subsidy is also paid on imported fertilizers in order to bridge the difference between the cost of imports and the statutorily fixed consumer price,

1.5.3 Apart from the subsidy on the controlled fertilizers (urea), the Government has been giving a special concession on decontrolled fertilizers in order to promote the balanced use of plant nutrients. Earlier, this Scheme was being administered by the Department of Agriculture and Cooperation. Now, the Scheme has been transferred to the Department of Fertilizers wet. 1,102000,

Concessions/incentives to domestic fertilizer industry

1.6.1 To encourage investment in the fertilizer sector, the following concessions are available to the domestic industry

i) Concessional customs duty benefit on import of capital goods for setting up of new plants/substantial expansion/ renovation/modernisation of existing units,

ii) Deemed export benefits to indigenous supplies of capital goods to new/revamped/retrofit/modernisation of fertilizer projects, provided such supplies are made under the procedure of international competitive bidding and no price preference is given to indigenous vendors.