India's Fertilizer Industry: Productivity and Energy Efficiency

Historical estimates of productivity growth in India's fertilizer sector vary from indicating an improvement to a decline in the sector's productivity. The variance may be traced to the time period of study, source of data for analysis, and type of indices and econometric specifications used for reporting productivity growth. Our analysis shows that in the twenty year period, 1973 to 1993, productivity in the fertilizer sector increased by 2.3% per annum. An econometric analysis reveals that technical progress in India's fertilizer sector has been biased towards the use of energy, while it has been capital and labor saving. The increase in productivity took place during the era of total control when a retention price system and distribution control was in effect. With liberalization of the fertilizer sector and reduction of subsidies productivity declined substantially since the early 1990s. Industrial policies and fiscal incentives still play a major role in the Indian fertilizer sector. As substantial energy savings and carbon reduction potential exists, energy policies can help overcome barriers to the adoption of these measures in giving proper incentives and correcting distorted prices.