Author Topic: Urea subsidy: Why not set up joint venture plants in the Gulf?  (Read 922 times)

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Offline Ajai Singh

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Urea subsidy: Why not set up joint venture plants in the Gulf?
04/06/2013 12:20 PM |   

The government and or urea manufacturers must seriously consider setting up overseas units in the Gulf so as to get the best advantage in the present circumstances. Such a move would bring in bilateral benefit whereby India can assure these overseas partners that their foodgrain supply will be guaranteed

Bold advertisements speak of the record production of foodgrain made in the last nine years of UPA (United Progressive Alliance) rule. Production rose from 198.36 million tonnes to a robust 259 million tonnes in 2012-13. Such announcements will not say anything about the million of tonnes lost to rodents, rotting in open warehouses and other forms of damage making them unusable.
 
In the meantime, the UPA wishes to process and get the Food Security Bill passed, which is expected to assure some 80 crore Indians supply of rice at Rs3 per kg and wheat at Rs4 per kg, thanks to the record production.
 
Monsoon prediction is good, but it is too early to say how the wind blows.
 
It is entirely a different matter that in order to achieve this, urea subsidy alone is Rs9,000 per tonne, given to the gas-based fertilizer units.  According to information available, the cost of production of urea is Rs15,000 per tonne and the manufacturer is permitted to sell the same at Rs5,360 (MRP) to the farmer, and the government subsidizes by giving Rs9,000. This enables the manufacturer to get a return of 12% while making the urea available to farmer at a uniform price. As against this, imported urea costs anything between Rs22,000 to Rs24,000 per tonne. In addition to which costs of shipping freight, domestic handling and transportation costs to the point of consumption and the intermediary margins will only increase the total burden. The government subsidy will also increase accordingly.
 
The farmer is assured of a minimum sales price when selling the produce to the government and he is free to sell in the open market to fetch a higher return.
 
The supply of fertilizers helps the farmer to ensure that his produce is of good quality and marketable.  To achieve this, he depends upon the uninterrupted supply of urea at the uniform price.
 
The installed urea capacity in the country is 200 million tonnes, but the actual production is around 225 MT, against the annual requirement which varies between 305 MT and 310 MT, necessitating the import of some 75/80 million tonnes. Poor rainfall would mean lower consumption of urea.
 
A reference to the demand for natural gas is necessary to understand the present status of fertilizer units. Because of the dwindling supply of gas, no new fertilizer units have come up (or licensed). In fact, the existing units have shed their ambition to expand simply because of non-guarantee in gas supplies and the continuing need to depend upon imported LNG, of which 10-12 mmscmd are imported.
 
Led by the agricultural minister Sharad Pawar, a Group of Ministers (GoM) is scheduled to meet next week to consider a revision in the pricing policy of urea which may be kept valid for a period of three years. Such a move will probably give adequate time for the prospective increase in the indigenous gas supplies duly supported by supply pipelines.
 
What is to be noted is that if the MRP is not fixed and the manufacturer is permitted to fix a remunerative price, urea cost will skyrocket to the farmer and the cost of production will go haywire. The government, obviously, cannot subsidize manufacturers’ profits, but can help to a certain extent. At the same time, it cannot carry on this programme of indefinitely subsidizing the urea cost.
 
It therefore remains to be seen the kind of reception that Food Security Bill will get in the Parliament, though, the opposition led by BJP has outwardly, at least, claimed that it has no objection in taking up this issue.
 
In the meantime, the government and or urea manufacturers must seriously consider setting up overseas units in UAE, Kuwait, Saudi Arabia, Qatar and Iran so as to get the best advantage in the present circumstances. Such a move would bring in bilateral benefit whereby India can assure these overseas partners that their foodgrain supply will be guaranteed, and, in the process, cost of production of urea will be considerably cheaper than in India!



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