Economics Project Fertilisersfinal Print
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Transcript of Economics Project Fertilisersfinal Print
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8/8/2019 Economics Project Fertilisersfinal Print
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Economics Project
Demand and Supply Analysis on Fertilisers
By:
ADITYA SUREKA
GUNJAN MALHOTRA
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Sr.No Topic Page.No
1 Introduction to the topic 1
2Fertiliser and Manures
(consumption,Production and Import)
6-14
3Elasticity of Demand
and Supply15
4 Bibliography23
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Introduction to the Topic
India is primarily an agriculture based economy. The agricultural sector
and its other associated spheres provide employment to a large section of
the country's population and contribute about 25% to the GDP.
The Indian Fertilizer Industry is one of the allied sectors of the
agricultural sphere. India has emerged as the third largest producer of
nitrogenous fertilizers. The adoption of back to back Five Year plans has
paved the way for self sufficiency in the production of food grains. In fact
production has gone up to an extent that there is scope for the export of
food grains. This surplus has been facilitated by the use of chemical
fertilizers.
The large scale use of chemical fertilizers has been instrumental in
bringing about the green revolution in India. The fertilizer industry in
India began its journey way back in 1906. During this period the first
Single Super Phosphate (SSP) factory was established in Ranipet in
Chennai. It had a capacity of producing 6000 MT annually. In the pre and
post independence era a couple of large scale fertilizer units were
established namely the Fertilizer Corporation of India in Sindri, Bihar and
the Fertilizer & Chemicals Travancore of India Ltd in Cochin, Kerala.
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http://www.economywatch.com/indian-fertilizer-industry/http://www.economywatch.com/indian-fertilizer-industry/http://www.economywatch.com/indian-fertilizer-industry/http://www.economywatch.com/indian-fertilizer-industry/ -
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The Indian government has devised policies conducive to the manufacture
and consumption of fertilizers. Numerous committees have been formed
by the Indian government to formulate and determine fertilizer policies.
The dramatic development of the fertilizer industry and the rise in its
production capacity has largely been attributed to the favourable policies.
This has resulted in large scale investments in all three sectors viz. public,
private and co-operative.
At present there are 57 large scale fertilizer units. These manufacture an
extensive range of phosphatic, nitrogenous and complex fertilizers. 29 of
these 57 units are engaged in the manufacturing of urea, while 13 of
them produce Calcium Ammonium Nitrate and Ammonium Sulphate. The
remaining 20 fertilizer plants manufacture complex fertilizers . There are
also a number of medium and small scale industries in operation, about
72 of them. The following table elucidates the installed capacity of each
sector.
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http://www.economywatch.com/indian-fertilizer-industry/http://www.economywatch.com/indian-fertilizer-industry/http://www.economywatch.com/indian-fertilizer-industry/http://www.economywatch.com/indian-fertilizer-industry/ -
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The Department of Fertilizers is responsible for the planning, promotion
and development of the Fertilizer industry. It also takes into account the
import and distribution of fertilizers and also the financial aspect. There
are four main divisions of the department. These include Fertilizer
Imports, Movement and Distribution, Finance and Accounts,
Fertilizers Projects and Planning and Administration and Vigilance. It
makes an assessment of the individual requirements of the states and
union territories and then lays out an elaborate supply plan.
Though the soil in India is rich in silt, it lacks chiefplant nutrients like
potassium, nitrogen and phosphate. The increase in the production of
fertilizers and its consumption acts as a major contributor to overall
agricultural development.This project focuses on the demand and supply of the fertilisers.
Fertilisers and manures
For boosting agriculture output, usage of chemical fertilizers has animportant role to play. Indias soil though varied and rich is deficient in
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Sl. No Sector Capacity (LMT) Percentage Share
N P N P
1 Private Sector 53.94 35.13 44.73 62.08
2 Public Sector 34.98 4.33 29.0 7.65
3 CooperativeSector
31.69 17.13 26.27 30.27
Total 120.61 56.59 100.0 100.0
http://www.economywatch.com/indian-fertilizer-industry/http://www.economywatch.com/indian-fertilizer-industry/http://www.economywatch.com/indian-fertilizer-industry/http://www.economywatch.com/indian-fertilizer-industry/http://www.economywatch.com/indian-fertilizer-industry/http://www.economywatch.com/indian-fertilizer-industry/ -
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Nitrogen and Phosphorus which together with organic manure influence
crop return.
Increase in the population has lead to an usage of larger doses of
chemical fertilizers which is the only way to augment the food grains
production.
The New Agricultural Strategy was based on increased use of fertilizers.
Demand and Supply of Fertilisers
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Now let us see the demand and supply of the fertilizers over the years in
Indian economy.
Year Demand(Tonne)
Supply(Tonne) Price/Tonne
1951-52 70 91 758
1970-71 2260 1690 1800
1990- 91 12550 14620 2400
2000- 01 16700 16840 4600
2005- 06 20340 20828 4830
2006- 07 21651 112154 4980
Consumption of Fertilizers:
The consumption of chemical fertilizers has been growing rapidly since the
New Agricultural Strategy was adopted in the 60s (can be seen in the
table)
In 1950-51 where it was a mere 70000 tonnes which rose up to 12.5
million tonnes in 1990-91 and likely to be 20.3 million tonnes in 2005-06.
The consumption has been erratic because of high variability of monsoon
conditions.
Graphical representation of the data:
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PRODUCTION OF FERTILISERS
The fertiliser industry has made a rapid progress during the past
decade. It has rose from a mere 39000 tonnes in 1951-52 to over 8
million tonnes in 2005-06. Though there has been a growth but its notenough to keep pace with the growth in consumption.
There are many reasons for this:
There has always been much delay in the setting up of fertiliser
plants in India. As it takes 8 to 9 years to complete a project
from the time of issue of the letter to intent, causing
unnecessary increase in the cost of the project.
There is also a problem of the capital for the programme. It is
estimated somewhat between Rs.5000 crores and Rs.10000
crores would be required of which about 25 to 30% of the total
outlay would be foreign exchange component.
The Government of India was never clear about the role of the
private sector in the fertiliser industry. There was, therefore
considerable hesitation and delay in the issue of licences to
private parties to set up fertiliser plants.
Now that the government has seen the need for an increase inforeign investment, it has granted certain concessions to attract
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foreign capital for the fertiliser industry such as majority equity,
participation, distribution rights, etc.
But the response was poor mainly because of:
1. Profitability of exports of fertilisers to India was very high, &
2. There was uncertainty with respect to the availability of raw
materials.
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IMPORTS OF FERTILISERS
As internally there has been a shortage of fertilisers the government is
highly depended upon the imports. It has been a tremendous growth from
2.7 million tonnes in 1990-91 to 5.25 million tonnes in 2005-06.
Large imports are carried as there is scarce use of foreign exchange and
subsidies which resulted in vigorous policy of setting up fertiliser within
the country.
Internationally too , due to fertilisers becoming scare and because of oil
crises there been a drop in the imports.
Steps taken:
Government has been promoting the consumption of fertilizersthrough heavy subsidies.
Special measures are also taken to streamline distribution of
available supplies through better transport regulated supplies to
priority crops and areas specified by the State Governments.
Ensuring adequate supplies of wagons through high level co-
ordination with the railways provision of short term credits to states
for the purchase and distribution of fertilizers.
Promotion of balanced use of fertilizers (through a fertilizer
promotion scheme)
Setting up of soil testing laboratories in various parts of the country
for proper soil testing and so on.
Despite of all this Indias position is much behind other progressive
countries.
Therefore, we can come to a conclusion considering the fertilizerconsumption pattern, over the last three decades:
i. Consumption of fertilizer in India per hectare in 1950-51 was
negligible but increased to 104.5 kgs in2005-06. The corresponding
figures for some developed countries were: South Korea (400kgs),
Netherlands (275 kgs), Japan (340kgs).
ii. Absence of assured supply of water which is a primary condition for
the applications of chemical fertilizers is lacking over large parts of
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country and this acts as a hindrance to their more rapid
consumption in India.
iii. Since out of 70% only 20% is being consumed of the total
fertilizers, government has been taking steps in recent years to
increase the consumption of fertilizers in these areas...eg; the
government has sanctioned a National Project and Development of
Fertilizer use in Low Consumption Rain fed areas in 60 identified
districts in 16 states. The programme includes field block
demonstrations; farmers training programmes, opening additional
soil testing laboratories and additional retail outlets.
iv. Rabi crops (food and non-food) which contribute to 1/3rd of
agricultural production, account for 2/3rd of fertilizer consumption.
This is largely due to more assured availability of irrigation of sub-
soil moisture for rabi crops.
v. There has been a steep rise in fertiliser subsidies from Rs.600
crores in 1979-80 to Rs.4400 crores in 1990-91 and to Rs.22450
crores during 2006-07.
vi. The use of plant nutrients received scant attention in the past. The
sharp increase in the international fertilizer prices has compelled the
government to divert attention to greater use of organic manures.
Roughly if we see, one third of cow dung is not collected and one third
is used as fuel by the villagers; and the amount actually collected and
used is about 340 million tonnes.
At present, cattle urine which has valuable manorial properties is
completely wasted. If it is mixed with cow dung the available manure
will be about 400 million tonnes.
This type of provision to the rural population will help to increase the
availability of farmyard manure.
Beside, the more use of this will help in making organic manures
available to the cultivator.
Also a great scope for the manufacturer is there as he can compost
from the urban waste, forest litter and other waste materials and also
for use of green manures.
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This will help in reducing our dependence on chemical fertilizer as it is
naturally available to us. In fact, there is growing awareness among
farmers of the importance of organic farming.
ELASTICITY OF DEMAND AND SUPPLY
Demand for a good depends not only on its price, but also on consumer
income and on the prices of other goods. Likewise, supply depends bothon price and on variables that affect production cost. Elasticity measures
the sensitivity of one variable to another. Specifically, it is a number that
tells us the percentage change that will occur in one variable in response
to a 1-percent increase in another variable.
Price Elasticity of Demand:
It is the percentage change in quantity demanded of a good resulting
from a 1-percent increase in its price.
where,
simply means percentage change in Q and means percentage
change in P
The symbol is the Greek capital letter delta ; it means the change in.
So X means the change in the variable X, say from one year to the
next.
The percentage change in the variable divided by the original level of the
variable.
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Elasticity of Demand:
Number and closeness of substitutes :
Here, the number of substitutes for fertiliser is more i.e for organic
fertiliser which is very rare to find due to firstly wrong government
policies and no support from them either, secondly due to high
variability of monsoon conditions in India. Therefore, it is elastic in
nature i.e it has more substitutes.
Price of the product:
Here, if we get fertilisers at a subsidy rate provided by the government
the elasticity will be lower. This means that companies will havevarious options available which will lead to fluctuation of the price. As
we know that if the demand is elastic, an increase (decrease) in price
will lead to decrease (increase) in total revenue.
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ELASTICITY OF DEMAND
CROSS PRICE ELASTICITY INCOME ELASTICITY
CROSS PRICE ELASTICITY:
A measure of the responsiveness of the demand for a good to changes in
the price of a related good; the percentage change in the quantity
demanded of one good divided by the percentage change in the price of a
related good.
It can be positive or negative.
Here, the cross price elasticity will be positive because goods are having
substitutes available.
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INCOME ELASTICITY:
A measure of the responsiveness of the demand for a good to changes in
consumer income; the percentage change in quantity demanded dividedby the percentage change in income.
INCOME ELASTICITY
NORMAL GOODS INFERIOR GOODS
NECESSARY LUXURIOUS
Here, our product is a normal good and in it, it is a necessary good i.e
one cannot do without the product.
Necessary goods have income elasticity less than one.
ELASTICITY OF SUPPLY:
The responsiveness of supply changes as there is a change in the price.
It is inelastic if the suppliers dont adjust to the change in price.
It is elastic if they react quickly to the change in price.
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BIBLOGRAPHY
Microeconomics 7th edition by Robert S Pindyck, Daniel L. Rubinfeld and
Prem L. Mehta
Irrigation and other agricultural inputs
Indian Economy K.P.M Sundharam and Ruddar Datt.
WIBLOGRAPHY
www.investopedia.com
www.economywatch.com/indian-fertilizer-industry/
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