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Tuesday, March 1, 2011

FERTILISER: Capital investment in fertiliser production to get tax rebate

To encourage investment in the fertiliser industry, the government decided to exempt capital expenditure incurred on production of farm nutrient from tax. Finance Minister Pranab Mukherjee also included capital expenditure on fertiliser production as an infrastructure sub-sector.

At present, India imports the entire requirement of potash, about 90 per cent of phosphatic and about 20 per cent of urea.

"Investment in fertiliser sector is capital intensive and is considered high risk. It is proposed to include capital investment in fertiliser production as an infrastructure sub-sector," Mukherjee said in his Budget speech.
By getting infrastructure status, the companies investing in manufacture of fertilisers would get favoured treatment in fund raising from overseas. He also proposed "to extend the benefit of investment linked deduction to businesses engaged in the production of fertilisers" to give a boost to production in the agriculture sector.

Under Section 35AD of the Income Tax Act, investment linked tax incentive is provided by way of allowing 100 per cent deduction in respect of any expenditure of capital nature (other than on land, goodwill and financial instrument) incurred for the purposes of "specified business".

In the Budget, Mukherjee included two new businesses in the list of specified business, including 'fertiliser production in India'.

The country has imported 16.17 million tonnes of fertilisers in April-November this fiscal, almost equal to total import of 16.38 million tonnes farm nutrients in the entire 2009-10, said the Economic Survey, which was presented in Parliament last week.

The import of Di-ammonium phosphate (DAP) in the first eight months of 2010-11 fiscal stood at 6.81 million tonnes have already surpassed the import of 5.88 million tonnes in the entire previous year.

The country has imported 4.58 million tonnes of urea during April-November period of this fiscal as against 5.2 million tonnes in the entire last year. During the period under review, imports of MOP (muriate of potash) stood at 4.78 million tonnes as compared with 5.28 million tonnes.

"Availability of raw material/intermediaries has been a major bottleneck in the increase in production of fertilisers," the survey pointed out.

SUBSIDIES

"Govt to give cash subsidy on kerosene, fertilisers from 2012"

With an estimated 60 per cent of subsidised fuel not reaching its targeted population, the Finance Minister Pranab Mukherjee said BPL families will get direct cash subsidy to buy fertilizers and cooking fuel at prevailing market prices from 2012.

While the roadmap for rolling out direct cash transfers will be available by March 2012, Mukherjee announced about 13 per cent reduction in subsidy of fuel, food and fertilisers for 2011-12 fiscal to Rs 1,34,210 crore from Rs 1,53,962 crore in the revised estimates for the current fiscal.

"The government will move towards the direct transfer of cash subsidy to people living below poverty line (BPL) in phased manner. The system will be in place by March 2012," Mukherjee said in his Budget speech.

Currently, 6.52 crore BPL families are covered under the Public Distribution System (PDS).
"A task force headed by Nandan Nilekani has been set-up to work out modalities for the proposed system of direct transfer of subsidy for kerosene, LPG and fertilisers. The interim report of the task force is expected by June 2011," he said.

Noting that the govenment sells subsidised fuel and foodgrains for the benefit of the poor, Mukherjee said: "A significant proportion of subsidised fuel does not reach the targeted beneficiaries and there is large scale diversion of subsidised kerosene oil".

At present, a large portion of subsidised kerosene is diverted for adulteration in auto fuel. Similarly, subsidised domestic LPG gets diverted to commercial establishment.

Currently, kerosene oil is sold through ration shops at subsidised rate of Rs 20.57 a litre, while domestic LPG is given at a discount of Rs 356.07 per 14.2-kg cylinder.

By cash transfer of subsidy to BPL families, the diversions would be eliminated. Once this system comes into force, kerosene and domestic LPG will be sold at market price.The difference between the market price and subsidised rate will be provided by way of coupons or some other appropriate means to the BPL families.

The coupons can be used for purchase of kerosene and LPG and net price to the BPL families will remain at original levels.

Currently, the government compensates oil marketing companies for selling kerosene and domestic LPG below cost. For the 2011-12 fiscal, the government estimated lower oil subsidy bill at Rs 23,640 crore, compared to Rs 38,386 crore in the current fiscal.

Mukherjee also estimated a decline in fertiliser subsidy bill at Rs 49,997 crore for the next fiscal, as against Rs 54,976 crore in the 2010-11 financial year.

He said the nutrient-based subsidy (NBS) policy on potash and phosphatic fertlisers, which was introduced in last year's Budget, has received good response from stakeholders and the government is considering to extend NBS to cover urea.

Meanwhile, the government's food subsidy, given to run the public distribution system, is also estimated to decline marginally to Rs 60,572 crore next fiscal from Rs 60,599 crore in 2009-10.

SURVEY-FERTILISER

"Fertiliser imports in April-Nov stand at 16.17 mln tn"

India imported 16.17 million tonnes of fertilisers in April-November this fiscal, almost equal to total import of 16.38 million tonnes farm nutrients in the entire 2009-10, the Economic Survey.
The import of Di-ammonium phosphate (DAP) in the first eight months of 2010-11 fiscal stood at 6.81 million tonnes have already surpassed the import of 5.88 million tonnes in the entire previous year.
The sharp rise in imports of DAP is because of estimated decline in domestic production in 2010-11 and rising demand. DAP output is likely to fall to 3.95 million tonnes this year as against 4.24 million tonnes in the previous year.
The country has imported 4.58 million tonnes of urea during April-November period of this fiscal as against 5.2 million tonnes in the entire last year.
During the period under review, imports of MOP (muriate of potash) stood at 4.78 million tonnes as compared with 5.28 million tonnes.

Urea production in 2010-11 fiscal is estimated to go up to 21.53 million tonnes from 21.11 million tonnes in previous year, while that of complex fertilisers increased from 8.03 million tonnes to 9.16 million tonnes.

"Availability of raw material/intermediaries has been a major bottleneck in the increase in production of fertilisers," the survey pointed out.
India is meeting 85 per cent of its urea requirement through indigenous production, but is largely dependent on import for meeting the phosphorus and potassium requirements either as finished fertilisers or raw materials.
"The entire requirement of potash, about 90 per cent of phosphatic and about 20 per cent of urea is met through imports," the survey said. The farmers bear only 25-40 per cent of the actual cost and the rest is borne by the government in the form of subsidy reimbursed to the manufacturers and importers.

Through the Lenses !

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