India GST supply crunch: Fertiliser, pesticide pipeline turns dry ahead of sowing

Date:06-21-2017

The GST is expected to increase supply-side bottlenecks due to the inability of trade to fully shift to the new regime. The second of a three-part series looks at how the farming community is dealing with the crunch.

At a time when millions of farmers across India are getting ready to sow Kharif crops such as paddy, sugarcane, oilseeds, and pulses, manufacturers of fertilisers and pesticides are seeing a large disruption in dispatches. This comes as the deadline for the introduction of the goods and services tax (GST) nears. The trade, admit fertiliser and farm-input majors, has been stocking less as farmers hold up purchases.

A 12% GST has been slapped on fertilisers, higher than the earlier VAT (value-added tax) of 5% in most states and the excise duty of 1%. This means prices would go up after July 1, industry executives said.

While one would have expected a heavier lifting of fertilisers now, given that prices will shoot up next month, the picture is different on the ground, according to sector experts. The trade has been slow on picking up stocks in June, impacting sales for the month.

Another issue with the trade is that the stocks till June 30 will have a certain maximum retail price (MRP), which will have to be sold at a price above the MRP from July 1 due to the GST.The trade is hardly enthused about this.

“We are trying to sell the products, but there is widespread apprehension due to the GST, and sales have come to a halt. Dealers are not interested in stocking as they are not sure about the impact of the GST on their business. We are trying to explain to farmers that it will be beneficial for them to buy now. We are also educating the trade,” said Sovan Chakrabarty, executive director and business head at Shriram Farm Solutions, which sells fertiliser, pesticides, micro nutrients, and crop-care chemicals worth over Rs 2,000 crore annually.

The division of DCM Shriram has seen dispatches come to a near standstill in the first fortnight of June. “Since farmers are not coming to buy, dealers are not lifting from the distribution channels. This could have some impact on sowing, which may not be smooth during the Kharif season,” said Chakrabarty.

The company has sold only 20-30% of its stock against planned dispatches for the first fortnight of June, which is the last month before sowing picks up in most states. “I do not foresee a significant improvement in the second fortnight (of June) either. If buying starts from July, dispatches should improve,” Chakrabarty said.

There is also an issue pertaining to GST Network (GSTN) registration, sector experts say. Dealers require GSTN registration, but in states like Punjab and Haryana, those who did not have a VAT registration have not been able to get GSTN registration yet.

S Sankarasubramanian, chief financial officer at Coromandel International, a leading fertiliser and farm solutions company, said dealers were not clear about the impact on inventory due to the GST. “Trade channels cannot sell old stocks by making an invoice above the fertiliser MRP from July 1. This has confused many, prompting them to keep pipelines thin. The momentum has, therefore, slowed and stocking activity is down,” he said.

Kharif (summer) season sowing accounts for almost half the grain production in India. Other than paddy (which gets milled into rice), oilseeds, sugarcane, and pulses, cotton is a key crop of the season.

Some experts and industry officials say the slowdown in farmers’ purchases is due to reluctance to stock until the monsoon progresses this year. “The impact may be due to the patchy monsoon so far and farmers may not be willing to take investment risk right now due to prior bad experience,” said Sanjay Kumar Gupta, president and director, JK Agri Genetics, part of the JK organisation.