FERTILIZER PRICING POLICIES, PRACTICES AND STRATEGIES-A CASE STUDY OF SPIC LTD

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Date
2003
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ACHARYA N.G. RANGA AGRICULTURAL UNIVERSITY RAJENDRANAGAR, HYDERABAD
Abstract
Fertilizer industry has been the backbone of Indian agriculture. Chemical fertilizers played a vital role in India’s Green revolution and they continue to play a predominant role in India’s agriculture economy. The progress of Indian Agriculture has been going through different phases. Over years specific policy initiatives have set the direction and steered the development of the agricultural sector to meet the macro objectives in each of the phases. The pre-Green revolution period saw the thrust on expansion of area under cultivation and intensifying efforts to increase food production. The Green revolution period saw the focus on increasing yield through use of modern inputs, HYV seeds, and chemical fertilizers and investment in irrigation. The post Green revolution phase saw period of consolidation where the focus shifted to ensuring equitable distribution of food grains at affordable prices and management of surpluses. In the current phase we are seeing a period of Globalization and emergence of a unified world economy. With the economic reforms of 90’s liberalization became the centre stage in management of Indian economy. The World Trade Agreement (WTA) came into effect on 1st January 1995 with countries working towards curtailing subsidies by 20% over 1986 benchmark. The Indian Government has been keen to reduce agricultural subsidies, including subsidy on fertilizers, in order to improve the over all fiscal situation. 2 With the objective of boosting consumption and production of fertilizers, Government has introduced Retention Price cum subsidy scheme RPS in 1977 in fertilizer industry but in the current reform era as a first step to reduce fertilizer subsidy, phosphatic and potassic fertilizers were decontrolled in August 1992. The demand of fertilizer being price elastic, the sudden and sharp rise in consumer price of these fertilizers adversely affected consumption. The subsidy had to be reintroduced in the form of “Concession support” which is still prevalent. The urea industry has been baffled by the uncertainty in absence of long-term policy on urea. Over the years, many committees have been constituted to give their recommendations on reforms in urea sector with a view to scale down subsidy on fertilizers to meet India’s commitment under World Trade Agreement (WTA). Apart from introducing Group pricing scheme categorizing Urea Plants in six groups, effective from 01.04.2003 and is being implemented in stages: Stage I : 1 April 2003 to 31 March 2004 Stage II : 1 April 2004 to 31 March 2006 Stage III : 1 April 2006 onwards The government of India has taken 25% urea production out of movement control and from 01.10.2003; this proportion will increase to 50%. The manufacturers will get the freight subsidy Rs.100/- per tonne less on this deregulated quantity. The fertilizer industry in India is passing through an extremely critical phase. i.e., emerging out of a highly protected environment into an environment of liberalization encompassing among other things decontrol. The commitment of the Government in the fast changing economic scenario has been towards gradual deregulation of the economy. Increasing international competitiveness of fertilizers at par with the best in the world, adoption of most modern and efficient technological practices of production, all-round and 3 balanced growth of the sector, the new scheme has come into effect from 1 April 2003 and is being implemented in stages. The Government expects that the new pricing policy for urea units will boost production, encourage internationally competitive production practices, substantially reduce the burden of urea subsidy and promote greater transparency, uniformity and efficiency for all round harmonious development of the industry as a vigorous sector of the Indian economy. The emerging scenario has thrown up several challenges to the fertilizer industry, hence the strategy makers in the industry has to evolve suitable strategies to meet such challenges.
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FERTILIZER, PRICING, POLICIES, PRACTICES , STRATEGIES-A CASE, STUDY, SPIC, LTD
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