Fertiliser companies want duty cut on fuel, inputs in the budget

Mumbai: The fertiliser companies are seeking the removal of basic customs duty on liquefied natural gas (LNG), which is used as feedstock, along with cuts on inputs such as ammonia, phosphoric acid and sulphur, with a view to reduce the cost of production.

According to reports, the removal of the 5 per cent customs duty on the feedstock and inputs in the 2008/09 Budget will additionally help in reducing the government's subsidy bill as well. The Fertiliser Association of India says that a big chunk of the cost of production is the energy cost, and the government needs to make a long term policy for meeting the energy requirement.

Indian fertiliser producers sell to farmers below market prices, and are compensated for the difference by the government, part of which comes in the form of fertiliser bonds. The producers, on the other hand, would rather have cash, saying that cash is more valuable to their businesses in terms of funding the working capital, and the lack of it in the form of illiquid bonds hurts production.

The Fertiliser Association of India is also seeking fiscal incentives to be able to lure fresh investments in domestic fertiliser capacity. They would like to see a 15-year tax holiday, and exemption for fertilisers and inputs from the value added tax (VAT) charged by states. It may be pertinent to note that the last major urea domestic capacity addition of 775,000 tonnes was in 1999. The association says that the demand-supply gap is likely to expand to 16 million tonnes by 2012, from the existing 10 million tonnes now, if additional capacity is not added.