India’s fertiliser sector offers Rs 52,000-crore investment opportunity, with Rs 50,000-crore investment potential in urea alone. But feedstock constraint and need for policy reforms in urea has seen a capacity increase of only two million tonne over the past nine years, that, too, through revamp of existing capacity.

In urea, there is a scope to invest in 10-12 million tonne capacity, which translates into an investment of around Rs 50,000 crore. For phosphatic fertilisers, too, India has the potential to add three to four million tonne of capacities to meet demand, which is a potential investment of Rs 2,000 crore, according to a White Paper presented at an industry meet.

“The hiccups over investments in new urea capacities would increase India’s import dependence from 23 per cent of requirement now to 30 per cent by 2017 with no new capacities except a coal-bed methane-based urea in West Bengal,” said CRISIL.

India currently imports a sizeable portion of its fertiliser requirements. The intensity of fertiliser use has increased 1.4 times from 1995-2004 to 2005-12, rising from 85 to 116 kg each hectare. Primary fertilisers of nitrogen, phosphorous and potassium hold major share in consumption.

If the rise in fertiliser use had been accompanied by balanced application of NPK fertilisers, crop yields would have increased much more, it said.

The import dependence is expected to exceed 10 million tonnes annually in financial year 2017. “Dependence on subsidy makes the sector unattractive as it impacts industry’s profitability and credit profile,” said Crisil. Besides, fertiliser makers are looking at another year of delayed subsidy payments from the government despite a higher subsidy of Rs 73,000 crore budgeted for this year. “While the special banking arrangement does partially ease working capital strain and also helps save on interest cost, the rise in interest costs has been relentless leading to deterioration in interest coverage ratios.”

The introduction of nutrient-based pricing has reduced the subsidy for phosphatic fertiliser manufacturers, for urea manufacturers, subsidy accounts for 70% of total realisations and they remain vulnerable to the risk of having to use more of the expensive regassified LNG even as the farm gate prices of urea are not cost-reflective.

With 70% of gas requirement of indigenous urea manufacturers being met from domestic gas, the increase in gas price from $4.2 per million British thermal unit to $5.6 would crank up its subsidy burden for urea. For every $1 increase in gas price, the government’s additional subsidy outgo is estimated at Rs 2,500 crore