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Agriculture
India is currently at a critical juncture where strong government focus on agriculture is needed. Last year’s drought
resulted in high food inflation in most basic food commodities. In the current year, India has grown by 7–8%; while at
the same time, agriculture output has grown at less than 1%. Although agriculture contributes just 18% of the total GDP,
it engages approximately 60% of the country’s labour force. India has around 146mn hectares (ha) of land under
agriculture, which yields 188mn tonnes of food grain; while in case of China, it has 100mn ha of land, which yields
412mn tonnes of food grain. India produces around 600mn tonnes of food products (fruits + vegetables), of which
25–30% is wasted due to lack of adequate logistical support. Hence, the need to raise production along with
productivity of land and developing cohesive logistical support is of utmost importance and the best way to manage the
long-term food security issue.
Farm production and yield can be increased with the help of (a) modern irrigation systems, (b) access to better-quality
seeds, (c) access to right fertilisers and (d) increasing priority sector lending norms. Logistical support can be addressed
by allowing more private sector participation.
In case of fertilisers, the country has not seen new plants being set up in the last two decades, while 25% of the total
consumption is still imported. Urea continues to be the most consumed fertiliser, as its prices are the lowest. Total
fertiliser subsidy has ballooned from `126bn in FY2002 to `580bn–590bn in FY2011E. Thus, a new fertiliser policy is
an immediate requirement, wherein the private sector is encouraged to expand fertiliser capacity. However, profitability,
returns and capex for the projects need to be kept in mind by the government. Along with relaxing rules pertaining to
participation from corporates/private sector in contract farming, other farming-related activities need to be amended.
At the same time, the government’s most successful scheme MGNREGA would continue to witness increased grants.
We believe this is further likely to aggravate labour supply to the agriculture sector and because of that farmers are
likely to opt for modern tools such as farm mechanisation and crop protection chemicals (pesticides) as a replacement
for human labour.
Budget Expectations
Head Current Status Wish List Potential Impact
Fertiliser
Current policy does not
encourage corporates for
Greenfield expansion due
to marginal/low returns
New policy that allows higher
return or gives capital subsidy
on new Greenfield capacity
If the industry wish list is satisfied completely, it would
help corporates expand capacity and in turn eliminate
the country’s dependence on imports. Positive for all
fertiliser companies, especially Tata Chemicals,
Chambal Fertiliser, Zuari Ind, GNFC, GSFC and RCF
Irrigation System Subsidy
`1,000cr through main
scheme and another
`3,000cr–4,000cr through
other schemes
Increase allocation by
20–25%.
Will help in bringing more drought-prone areas under
irrigation. Positive for companies such as Jain Irrigation
that provides micro irrigation system solutions to
farmers
Top Picks
United Phosphorus
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Agriculture
India is currently at a critical juncture where strong government focus on agriculture is needed. Last year’s drought
resulted in high food inflation in most basic food commodities. In the current year, India has grown by 7–8%; while at
the same time, agriculture output has grown at less than 1%. Although agriculture contributes just 18% of the total GDP,
it engages approximately 60% of the country’s labour force. India has around 146mn hectares (ha) of land under
agriculture, which yields 188mn tonnes of food grain; while in case of China, it has 100mn ha of land, which yields
412mn tonnes of food grain. India produces around 600mn tonnes of food products (fruits + vegetables), of which
25–30% is wasted due to lack of adequate logistical support. Hence, the need to raise production along with
productivity of land and developing cohesive logistical support is of utmost importance and the best way to manage the
long-term food security issue.
Farm production and yield can be increased with the help of (a) modern irrigation systems, (b) access to better-quality
seeds, (c) access to right fertilisers and (d) increasing priority sector lending norms. Logistical support can be addressed
by allowing more private sector participation.
In case of fertilisers, the country has not seen new plants being set up in the last two decades, while 25% of the total
consumption is still imported. Urea continues to be the most consumed fertiliser, as its prices are the lowest. Total
fertiliser subsidy has ballooned from `126bn in FY2002 to `580bn–590bn in FY2011E. Thus, a new fertiliser policy is
an immediate requirement, wherein the private sector is encouraged to expand fertiliser capacity. However, profitability,
returns and capex for the projects need to be kept in mind by the government. Along with relaxing rules pertaining to
participation from corporates/private sector in contract farming, other farming-related activities need to be amended.
At the same time, the government’s most successful scheme MGNREGA would continue to witness increased grants.
We believe this is further likely to aggravate labour supply to the agriculture sector and because of that farmers are
likely to opt for modern tools such as farm mechanisation and crop protection chemicals (pesticides) as a replacement
for human labour.
Budget Expectations
Head Current Status Wish List Potential Impact
Fertiliser
Current policy does not
encourage corporates for
Greenfield expansion due
to marginal/low returns
New policy that allows higher
return or gives capital subsidy
on new Greenfield capacity
If the industry wish list is satisfied completely, it would
help corporates expand capacity and in turn eliminate
the country’s dependence on imports. Positive for all
fertiliser companies, especially Tata Chemicals,
Chambal Fertiliser, Zuari Ind, GNFC, GSFC and RCF
Irrigation System Subsidy
`1,000cr through main
scheme and another
`3,000cr–4,000cr through
other schemes
Increase allocation by
20–25%.
Will help in bringing more drought-prone areas under
irrigation. Positive for companies such as Jain Irrigation
that provides micro irrigation system solutions to
farmers
Top Picks
United Phosphorus
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