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PRE BUDGET REPORTS

Pesticides and Agrochemicals: Cut Excise duty on Pesticides to 4%

Expects Non inclusion of agrochemicals in the list of Free Trade Agreements (FTAs)

Pesticides are one of the important agricultural inputs required to protect crop from the ravages of pests and diseases. Based on the chemicals used pesticides can be classified into herbicides, insecticides, fungicides and others. The agro chemical industry is working capital intensive and is greatly dependent on monsoon.

The Indian pesticide market can be divided into three major groups, one, the large Indian companies such as Rallis India, United Phosphorous that produce both technical grade pesticides and formulations and have a large product portfolio of generic products. Two, the larger number of multinational subsidiaries such as Monsanto India, Bayer Crop Science that cater to the niche markets like specialty products. Lastly, a large number of small players engaged in the formulation business.

'The per capita consumption of pesticides in India is still very low compared to the developed countries. The domestic demand of pesticides is driven by the rising food grain demand and increasing awareness about pesticide usage among the farmer community. However, threat of illegal, cheap imports from China is ever present and becoming a big factor in performance of local Indian producers.

Industry Expectation

The Pesticides Manufactures and Formulators Association of India (PMFAI) have put forth the following budget proposals for consideration in the Union Budget 2012-13.

• Reduction of Excise duty on Pesticides from the present level of 10% to 4%. The excise duty is calculated based on MRP, and abatement of 30%. That means, excise duty is reckoned on 70% o the MRP at 10%, which comes to 7% of the MRP.

• Import Duty on all fuels life fuel oils, LSHS, coal should be reduced to zero.

• Reduction of services tax by 5% from 10.30%.

• Non inclusion of agrochemicals in the list of Free Trade Agreements (FTAs)

• Permit tax free import of R&D equipments to the tune of 25% of export earnings

• Samples of pesticides for free distribution should be exempt from levy of excise duty

• Sustain income tax exemption on 100% of profits of an undertaking involved in carrying on scientific and industrial R&D exclusively for a further period of 10 years i.e. upto 31 March 2017.

• States should be prevailed upon not to levy VAT on agrochemicals.

Analysts/market expectations

It is unlikely that any of the demands of the pesticides industry would be met.

Companies to watch

United Phosphorous, Bayer Crop Sci, Rallis India, PI Industries

Outlook

Any reduction in tax and duty structures will benefit the farmers in getting pesticides at economical price which will help in protecting their crops from the ravages of pests and diseases and increasing agricultural productivity.

The agrochemicals industry is a significant industry for the Indian economy and the demand of agrochemicals in India is linked to monsoons. Unseasonable and deficient rainfall during the post monsoon period will have an adverse effect on the businesses of the players. Further, the signs emanating from global weather forecasters about a below normal rainfall in the country after two successive season of normal monsoon has put the whole agriculture industry in concern.

However, according to Ficci, since agricultural sector is highly depended on monsoons, the market for agrochemicals is expected to grow at a conservative growth rate of 7.5% to reach USD 1.95 billion by FY14 driven by demand for food grains, limited farmland availability and growing exports, growth of horticulture and floriculture and increasing awareness.