The hike in fertilizer prices is unlikely to impact individual companies as subsidies will go down and MRP will rise, which will not benefit private companies, says Satish Chander, Director General, Fertiliser Association of India (FAI).
The Prime Minister Narendra Modi-led government is planning to raise urea prices by at least 10 percent in order to contain subsidy costs that are straining the Budget.
The hike, if it comes through, will be first major price hike in four years. It would mark an important step by new government to cut wasteful use of urea and ease fiscal pressures resulting from a weak economy, government and industry officials told Reuters.
According to Chander, just a 10 percent urea price hike will not have much impact on the subsidy burden and fertilizer companies. However, if the prices are raised substantially to USD 300-USD 400 from current USD 90 then it will be in the interest of farmers with production productivity and better use of fertilizer efficiency.
Below are excerpts from the interview:
Q: The urea price hike, for now, is just speculation but if it does come in, then what could be the positive impact for fertilizer companies?
A: As far as individual companies are concerned, it has no direct impact at all. The subsidy will go down; the MRP will go up and so, the companies don't gain at all. If it is a substantial increase then whatever we have to recover from the government and there is an abnormal delay in that, so to that extent, we lose on the interest and that's the positive way how we look at it.
Also, this is a lead to balanced fertilization. So, these are the two things, but directly, financially it doesn't benefit in any manner apart from what I said.
Q: The buzz, according to government sources, is 10 percent. Will that mean a big working capital relief?
A: Ten percent is not big, it may be about Rs 2000 or so and we look forward to substantial increase. This is because urea price in India for the farmers is about 90/USD and nowhere in the world you have that type of low prices, even in south Asia, if you look at Pakistan, China they are around USD 300-400 and so, there is a very good case for increasing the urea prices and this will be in the interest of farmers with production productivity, better use of fertilizer efficiency.
Q: You don't expect demand resistance at 10 percent higher prices. Do you?
A: Absolutely zero. We have the experience of DNK Fertilizer where there is no impact on the demand at all. Around 20-40 percent or even up to 50 percent, there will be no impact on demand.
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