India Manufacturing

Corp.
Pvt. Ltd.
Fertilizers
 India Mfg. Co.

Nutrient-Based Subsidy
• Under the new policy, the companies can fix retail fertiliser prices. However the
urea prices will be increased by Rs 483 per tonne or 10 per cent
• The hike in urea prices is not going to impact the bottomline or EPS of fertiliser
companies as extra 10 per cent will go from farmer’s pocket directly. However,
looking at the shift in policy, it’s a big positive for the industry
• The companies have assured the government to keep the fertiliser prices stable this
year
• Fertilisers are sold at government-fixed prices, which are lower than their costs of
production or import. The difference is met through subsidy
• The NBS does away with maximum retail price. It proposes to replace the current
system of giving subsidy to the industry with direct assistance to farmers
• Likely to slash the government’s subsidy bill and boost fertilizer production
• This will incentivise companies to innovate beyond a handful of products sold in the
market presently and offer farmers choice based on soil needs. This is expected to
trim the subsidy bill by about Rs 44,000 crore a year.

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 India Mfg. Co.

Nutrient-Based Subsidy
• Balanced use of fertilizer a distant dream, unless other measures implemented
• Current policy skewed in favor of Urea, leading to its overuse by farmers
• By decontrolling the prices of potassic (K) and phosphatic (P) fertilizers, but still
having a lever of control through a system of fixed subsidy, govt. hopes this will lead
to farmers using more P, K and micro-nutrient based fertilizers
• Urea prices were frozen for seven years. The hike was overdue given the healthy
rise in the minimum support price during this period.
• Farmers do not know how much P & K need to be used, and infrastructure for soil-
testing almost does not exist
• NBS, in its present format, is primarily geared towards reigning in the ever-
increasing subsidy bill
• The country’s fertiliser subsidy has shot up by 530 per cent in the past five years
and touched Rs 99,456 crore in 2008-09. If the present system continues, the
government estimates the subsidy bill to shoot up to Rs 1,73,000 crore in 2011-12.

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 India Mfg. Co.

Nutrient-Based Subsidy
• Decontrol policy will also result in higher volatility in the profitability of players in the
industry. Operating efficiencies, therefore, will assume critical importance for
complex fertilizer players
• Under the existing regime, the government provides subsidy (the difference
between the cost of production and the controlled sale price) only on 15 fertiliser
products — urea, muriate of potash, diammonium phosphate, single super
phosphate and 11 other complexes with defined phosphorous (P), nitrogen (N) and
potassium (K) content
• Companies find it viable to market only these 15 products, stifling innovation and
leaving no choice for farmers
• So even though there are better fertilisers than urea with N content, urea is the
most preferred fertiliser in India because its sale price is fixed at Rs 4,830 a tonne
• The Prime Minister placated concerned ministers by agreeing to set up an inter-
ministerial mechanism that will attend to farmers’ interests by cushioning rising farm
inputs with enhanced minimum support prices

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 Thank You
Puneet Goyal, Business Head
India Mfg. Corp. Pvt. Ltd.
www.imfg.in ; info@imfg.in
99905 50666