Focus on farmer welfare

Allocation for Agriculture and Farmers' welfare is Rs 35984 crore. Allocation under Prime Minister Fasal Bima Yojana Rs 5500 crore. Positive news for fertilizer sector as welfare of farmer benefits fertilizer sector.

28.5 lakh hectares will be brought under irrigation

'Pradhan Mantri Krishi Sinchai Yojana' to be implemented in mission mode. 28.5 lakh hectares will be brought under irrigation. A dedicated Long Term Irrigation Fund will be created in NABARD with an initial corpus of about Rs 20,000 crore. Implementation of 89 irrigation projects under AIBP, which are languishing for a long time, will be fast tracked.

Positive news for fertilizer sector has country has seen 2 consecutive years of droughts which has impacted the crops and thus fertilizer industry.

Soil Health Card

Soil Health Card scheme will cover all 14 crore farm holdings by March 2017. 2000 model retail outlets of Fertilizer companies will be provided with soil and seed testing facilities during the next three years.

Positive to overall fertilizer sector

Loan burden on farmer reduced

To reduce the burden of loan repayment on farmers, a provision of Rs 15000 crore has been made in the FY 2016-17 towards interest Subvention.

Positive to overall fertilizer sector

DBT on pilot basis for fertilizer

Government has introduced direct benefit transfer (DBT) on pilot basis for fertilizer in a few districts across the country, with a view to improving the quality of service delivery to farmers. Positive to overall fertilizer sector as the government subsidy arrears have been risen from Rs 7,000 crore a few years ago to nearly Rs 35,000 crore. Budget constraints for fertilizer subsidy have been one of the most serious issues impacting the operations of fertilizer industry. DBT will help the fertilizer industry to improve its cash flow and balance-sheet as it will not have to depend of Government to pay for subsidy.

India's annual subsidy is about Rs 73,000 crore, a majority of which is paid to the manufacturers of controlled fertilizer urea. In last year's Budget, the government had allocated about Rs 73,000 crore for the fertiliser subsidy in the current fiscal.

Out of the Rs 73,000 crore, Rs 38,200 crore has been allocated for domestic urea and Rs 12,300 crore for imported urea, respectively. The remaining Rs 22,468.56 crore has been earmarked for the sale of decontrolled phosphoric and potassic fertilizers.

Krishi Kalyan Cess to fund farm programmes

Krishi Kalyan Cess of 0.5% on all taxable services effective from June 1 this year to fund farm initiatives.

Excise duty on pumps cut

Budget also proposed cut in excise duty on irrigation pumps and soil nutrients besides slashing import duty on cold storage related equipments.

Excise duty on micronutrients reduced

Excise duty on micronutrients [covered under S. No. 1(f) of Schedule 1 Part (A) of the Fertilizer Control Order, 1985 and manufactured by the manufacturers which are registered under the FCO, 1985] being reduced from 12.5% to 6%.

Good news for micronutrients manufacturers like Aries Agro.

Exempted excise duty on physical mixture of fertilizers

Excise duty on physical mixture of fertilizers, made out of chemical fertilizers on which duty of excise has been paid, by Co-operative Societies, holding certificate of manufacture for mixture of fertilizers under the Fertilizer Control Order 1985, for supply to the members of such Cooperative Societies, being exempted from present level of 1% (without ITC) or 6% (with ITC)

Actual user condition for the imports of Phosphoric Acid and Anhydrous Ammonia at concessional BCD/CVD for manufacture of fertilizers being prescribed.

Exempt LNG imports from customs duty

LNG is a clean fuel and mainly used in fertilizer and power sector. Recognizing the shortage of Gas, Government has encouraged import of LNG. Since LNG falls in the same logical category as Crude Oil, these must have the same treatment for purposes of taxation as applied to Crude Oil. Since custom duty on crude oil has already been made zero, import of LNG presently attracting 5% Custom duty should also be exempt. Through Finance Act 2012, Govt. has exempted levy of Custom duty on import of LNG for Power Sector. However, this exemption should be extended to other sectors also. It is recommended that exemption from payment of Custom Duty on import of Liquefied Natural Gas (LNG) may be granted for domestic use.

Enable DBT in food & fertilizer subsidy

On the lines of successful implementation of LPG gas cylinder subsidy, the Govt needs to roll out direct benefit transfer (DBT) of fertilizer subsidy payment. It will be critical to see if the Govt uses the oil bonanza to clean up the overall subsidy bill especially in Food/ Fertilizer which still remain large Rs 2 lakh crore (around 1.4% of GDP)

Customs duty needs to be rationalized on raw materials

Customs duty needs to be rationalized on raw materials that go as inputs in phosphatic fertilizers, in-line with Make in India

Hike Urea prices by 5-10%

Urea price increase shall lead to decline in subsidy receivable from government that shall ease out working capital and finance requirements. Customs duty rationalizations shall aid in decline in raw material prices, leading to overall volume growth. Currently while we factor in a volume growth of 12-14% in expectations of normal monsoon, lower raw material prices can expand the same.

Coromandel International, GSFC, Deepak Fertilizer

Outlook

Union Budget 2016-17 has seen more focus on well being of farmer and focus on agriculture. Though not any major announced was made for fertilizer industry, but industry will benefit immensely in long term from Prime Minister Fasal Bima Yojana, Long Term Irrigation Fund, Long Term Irrigation Fund and DBT on for fertilizer. The comparatively high usage of straight fertilizers (Urea, DAP & MOP) as against the complex fertilizers (NPKs) which are considered to be agronomically better including low or non usage of secondary and micro nutrients has also probably contributed towards slowdown in growth of productivity. The reduction in excise duty on micronutrients and exemption excise duty on physical mixture of fertilizers is good for fertilizer sector. Overall the Budget was positive for sector.

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