Fertiliser Subsidy

Farmers buy fertilisers at MRPs (maximum retail price) below their normal supply-and-demand-based market rates or what it costs to produce/import them. The MRP of neem-coated urea, for instance, is fixed by the government at Rs 5,922.22 per tonne, whereas its average cost-plus price payable to domestic manufacturers and importers comes to around Rs 17,000 and Rs 23,000 per tonne, respectively. The difference, which varies according to plant-wise production cost and import price, is footed by the Centre as subsidy.

• Subsidy on Urea:
  • In India, urea is the most produced, imported, consumed and physically regulated fertiliserof all. It is subsidised only for agricultural uses.
  • The Centrepays a subsidy on urea to fertiliser manufacturers on the basis of cost of production at each plant and the units are required to sell the fertiliser at the government-set Maximum Retail Price (MRP).
    • The MRP of urea is currently fixed at Rs 5,628 per tonne.
  • Subsidy on Non-Urea Fertilisers:
    • The MRPs of non-urea fertilisers are decontrolled or fixed by the companies.
    • But the government has, in recent times, and especially with the global price surge post the Russia-Ukraine war, brought these fertilisers under the control regime.
    • All Non-Urea based fertilisers are regulated under Nutrient Based Subsidy (NBS) Scheme.
    • Examples of non-urea fertilisers- DAP and MOP.
      • Companies do not sell DAP at more than Rs 27,000 per tonne.

Initiatives for Fertilisers

• Neem Coating of Urea:
  • The Department of Fertilizers (DoF) has made it mandatory for all the domestic producersto produce 100% urea as Neem Coated Urea (NCU).
• New Urea Policy (NUP) 2015:
  • Objectives of the policy are-
    • To maximize indigenous urea production.
    • To promote energy efficiency in the urea units.
    • To rationalize the subsidy burden on the Government of India.
  • Policy on Promotion of City Compost:
    • Approved a policy on promotion of City Compost, notified by the Department of Fertilisers (DoF) in 2016 granting Market Development Assistance of Rs. 1500/- for scaling up production and consumption of city compost.
    • To increase sales volumes, compost manufacturerswilling to market city compost were allowed to sell city compost in bulk directly to farmers.
    • Fertilizer companies marketing city compost are covered under the Direct Benefit Transfer (DBT)for Fertilizers.
  • Use of Space Technology in Fertilizer Sector:
    • DoF commissioned a three-year Pilot Study on“Resource Mapping of Rock Phosphate using Reflectance Spectroscopy and Earth Observations Data” by National Remote Sensing Centre under ISRO, in collaboration with Geological Survey of India (GSI) and the Atomic Mineral Directorate (AMD).

Issues Related to Fertiliser Subsidy

• Imbalance in Price of Fertilisers:
  • The high subsidy on urea and DAP makes them much cheaper for farmers relative to other fertilisers.
  • While urea is retailing at a fourth of the price of packed common salt, DAPhas also become far cheaper than other fertilizers.
  • The prices of the other fertilizers which were decontrolled have gone upwhich has led the farmers to use more urea and DAP than before.
• Nutrient Imbalance:
  • Theuse of N, P and K in the country has over the last few years sharply deviated from the ideal NPK use ratio of 4:2:1.
  • Urea and DAP contain more than 30% of any single nutrient.
    • Urea has 46% N, while DAP has 46% Pand also 18% N.
  • The resulting nutrient imbalanceowing to their use, disproportionate to other, more expensive fertilisers, could have implications for soil health, ultimately affecting crop yields.
• Damage to Fiscal Health:
  • Fertiliser subsidies are damaging the fiscal health of the economy.
  • Subsidizedurea is getting diverted to bulk buyers/traders or even non-agricultural users such as plywood and animal feed makers.
    • It is being smuggledto neighbouring countries like Bangladesh and 

Looking ahead

• Considering that all three nutrients namely N (nitrogen), P (phosphorus) and K (potassium) are critical to increasing crop yields and quality of produce, the government must necessarily go for a uniform policy for all fertilisers.
• In the long run, NBS itself should be replaced by a flat per-acre cash subsidythat could be used to purchase any fertiliser.
  • This subsidy mustinclude value-added and customised products containing not just other nutrients but delivering even nitrogen more efficiently than urea.