GOI Policy 2001-02
MRP Control
In Union Budget for 2001-02, GOI has decided to continue the control on the MRP of urea overlooking the ERC's recommendation of 7% increase in MRP, in line with the Thrust on liberalization and carrying the process of economic reforms further.
To cover restrictions on movement and distribution, a comprehensive review of essential commodities act will be held. The review will also include to view the need for reducing the no. of commodities covered under ECA, till then GOI may wait to take a view on removal of distribution control of urea.
Policy changes under existing RPS:
With effect from 1.4.2001 GOI will replace the existing unit wise retention pricing system (RPS) by the group-wise concession scheme, the groups include pre-1992 gas based plants, post 1992 gas based plants, naphtha based plants, fuel oil and LSHS based plants and plants based on mixed feedstock..
GOI has announced to link concession for plants based on naphta and fuel oil to import parity prices (IMPP) of these feedstock which has an impact on working out the concession rates.
To take care of the throw-forward from the previous year as also the impact of increase in the cost of feedstock during the current year to some extent an allocation is made on domestic urea as against the revised estimate of Rs. 9480 crores, which is Rs 1422 crores higher.
Subsidy announcements:
The subsidy on domestic urea during 2001-02 has been placed at Rs. 7956 crores. The reduction is apparently on account of the use of IMPP for feedstock in the determination of concession rates for plants based on naphtha, fuel oil/LSHS and mixed feed.
The concession scheme for the decontrolled P and k fertilisers.
The revised estimate is placed at RS. 4319 crores which is Rs. 226 crores higher than Budget allocation of Rs. 4093 crores. This will lead to substantial carry forwards into 2001-02.While the Budget allocation for concession support to decontrolled P and K fertilisers for the year 2001-2002 has been placed at Rs 5714 crores.
Levy of customs and excise duty
The abolition of the import duty surcharge of 10% will reduce the effective incidence of duty on urea, MOP, ammonia, phos acid, rock phosphate and sulphur from existing 5.5% to 5%.
CVD on Imported LNGCountervailing duty (CVD) on imported LNG, existing level being 16%, is removed. This will reduce the effective incidence of import duty from existing 21.8% to 5%. Considering that imported LNG is the feedstock for the future and ERC has also recommended switchover of all plants on feedstock other than domestic gas to LNG for achieving cost competitiveness, this is a welcome move.
Excise duty
Existing rates of excise duty on feedstock, raw materials/intermediates used in the manufacture of fertiliser are unchanged. An area of concern continues to be levy of excise duty on fuel oil and LSHS for use other than feed at 16%.
Apparently the impact of removal of quantitative restrictions (QR) w.e.f. 1.4.2001 on urea has not yet been considered. The Government has also not acceded the demand for elimination of duty on imported raw materials and intermediates. A consolidated decision of these issues will be taken only after the Government has taken a view on the report of the WTO Task Force of Fertilizers.
Miscellaneous effects
The government proposed an increase of 3% in the freight across the board. Even as this has affected DAP, all other completed phosphatic fertilizers and SSP besides raw material viz., rock phosphate sulphur and phos acid, urea has been exempted from the hike. The freight of movement of coal is up by 2% whereas, the increase in freight on fuel oil is 1%.
Due to this the cost of production and distribution particularly of the phosphatic fertilisers is expected to increase. The total impact of freight hike on the fertilizer industry works out to about 30-35 crores per annum. The increase in cost will put pressure on the margins of the manufactures if the concession rates are not adjusted to offset this.
Countervailing duty (CVD) on imported LNG, existing level being 16%, is removed. This will reduce the effective incidence of import duty from existing 21.8% to 5%. Considering that imported LNG is the feedstock for the future and ERC has also recommended switchover of all plants on feedstock other than domestic gas to LNG for achieving cost competitiveness, this is a welcome move.
Excise duty
Existing rates of excise duty on feedstock, raw materials/intermediates used in the manufacture of fertiliser are unchanged. An area of concern continues to be levy of excise duty on fuel oil and LSHS for use other than feed at 16%.
Apparently the impact of removal of quantitative restrictions (QR) w.e.f. 1.4.2001 on urea has not yet been considered. The Government has also not acceded the demand for elimination of duty on imported raw materials and intermediates. A consolidated decision of these issues will be taken only after the Government has taken a view on the report of the WTO Task Force of Fertilizers.
Miscellaneous effects
The government proposed an increase of 3% in the freight across the board. Even as this has affected DAP, all other completed phosphatic fertilizers and SSP besides raw material viz., rock phosphate sulphur and phos acid, urea has been exempted from the hike. The freight of movement of coal is up by 2% whereas, the increase in freight on fuel oil is 1%.
Due to this the cost of production and distribution particularly of the phosphatic fertilisers is expected to increase. The total impact of freight hike on the fertilizer industry works out to about 30-35 crores per annum. The increase in cost will put pressure on the margins of the manufactures if the concession rates are not adjusted to offset.
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