FERTILIZER SUBSIDY – AGRICULTURE
News: Centre ‘doubles’ fertilizer subsidy as prices see a surge
What's in the news?
● Considering the huge increase in the prices of fertilizers in the global market, the Centre has ‘doubled’ the fertilizer subsidy for this rabi season.
● A meeting of the Union Cabinet approved a subsidy of ₹51,875 crore to Nitrogen (N), Phosphorus (P), Potash (K) and Sulphur (S) for Phosphatic and Potassic (P&K) fertilizers for the ongoing rabi season.
Key takeaways:
● From the budget estimate of ₹21,000 crore of nutrient-based subsidy, the amount has been more than doubled, because of the price hike in global markets.
● The total fertilizer subsidy for the rabi season, including ₹80,000 crore for urea, would be ₹1,38,875 crore and for both the rabi and kharif, the subsidy amount would be ₹2.25 lakh crore. It was much higher than the previous year subsidy ₹1.65 lakh crore.
● The commercial prices had doubled due to the Ukraine-Russia conflict and the logistics issues due to pandemic.
● The Centre decided to double the subsidy component too such as a bag of Diammonium Phosphate cost ₹1,350 and it would have cost ₹2,650 without subsidy. On urea, the subsidy was around ₹2,400 per bag as a bag was being sold for about ₹266 instead of the market price, which was ₹2,700.
Fertilizer Consumption level in India:
● India consumed about 500 LMT of fertilizer per year in the last 10 years.
● The Centre's fertilizer subsidy bill is set to soar by 62% over the budgeted amount to Rs 1.3 lakh crore in FY21.
● Since non-urea (MoP, DAP, complex) varieties cost higher, many farmers prefer to use more urea than actually needed.
● The government has taken a number of measures to reduce urea consumption. It introduced neem-coated urea to reduce illegal diversion of urea for non-agricultural uses. It also stepped up the promotion of organic and zero-budget farming.
● Between 2018-19 and 2020-21, India’s fertilizer imports increased almost 8% to 20.33 Million Tonnes from 18.84 Million Tonnes.
● In FY21, more than a fourth of the urea requirement was imported.
● India, the top importer of urea, is a major buyer of Diammonium Phosphate (DAP) needed to feed its huge agriculture sector which employs about 60% of the country’s workforce and accounts for 15% of the USD2.7 trillion economy.
Fertilizer production:
● India's urea production to the total fertilizer production is around 86% and 52% of it's total urea consumption is met through imports.
● India produces around 52% of its total phosphatic fertilizer consumption.
● India imports all the potassic fertilizers as it lacks in potassium resources.
About subsidy in India:
● The government pays a subsidy to fertilizer producers to make this critical ingredient in agriculture affordable to farmers.
● This allows farmers to buy fertilizers at below-market rates.
● Every year the amount of fertilizer subsidy is around 1.1% of the GDP.
● The difference between the cost of production/import of a fertilizer and the actual amount paid by farmers is the subsidy portion borne by the government.
Subsidy on Urea:
● The Centre pays subsidies on urea to fertilizer manufacturers on the basis of cost of production at each plant and the units are required to sell the fertilizer at the government-set Maximum Retail Price (MRP).
Subsidy on Non-Urea Fertilizers:
● The MRPs of non-urea fertilizers are decontrolled or fixed by the companies. The Centre, however, pays a flat per-tonne subsidy on these nutrients to ensure they are priced at “reasonable levels”.
Examples of non-urea fertilizers:
● Di-Ammonium Phosphate (DAP), Muriate of Potash (MOP).
● All Non-Urea based fertilizers are regulated under Nutrient Based Subsidy Scheme.
● 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 granted by the Centre as a subsidy.
● The MRPs of non-urea fertilisers are decontrolled or fixed by the companies.
● The Centre, however, pays a flat per-tonne subsidy on these nutrients to ensure they are priced at “reasonable levels”.
How does a fertilizer subsidy mechanism work?
● The subsidy goes to fertiliser companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market-determined rates.
● From March 2018, a Direct benefit transfer (DBT) system was introduced, wherein subsidy payment to the companies would happen only after actual sales to farmers by retailers.
● Each retailer now has a point-of-sale (PoS) machine linked to the Department of Fertilisers’ e-Urvarak DBT portal.
● Anybody buying subsidised fertilisers is required to furnish his/her Aadhaar unique identity or Kisan Credit Card number.
● The quantities of the individual fertilisers purchased, along with the buyer’s name and biometric authentication, have to be captured on the PoS device.
● Only upon the sale getting registered on the e-Urvarak platform can a company claim subsidy, with these being processed on a weekly basis and payments remitted electronically to its bank account.
Different types of fertilizer subsidies:
1. Retention pricing system:
● Introduced for nitrogenous fertilizers in 1977. Later, it was extended to phosphatic and potassic fertilizers (Including Imported fertilizers).
● In this, the difference between retention price (cost of production as assessed by the government plus 12% post-tax return on net worth) and the statutorily notified sale price was paid as a subsidy to each manufacturing unit.
● This was the beginning of the “Product-based subsidy” regime.
● Currently, it is in work for urea based fertilizers.
2. Nutrient based subsidy:
● It is being implemented from April 2010 by the Department of Fertilizers, Ministry of Chemicals & Fertilizers.
● NBS policy intends to increase the consumption of P&K fertilizers so that optimum balance (N:P:K= 4:2:1) of NPK fertilization is achieved.
● Under the NBS regime – fertilizers are provided to the farmers at the subsidized rates based on the nutrients (N, P, K & S) contained in these fertilizers.
● Also, the fertilizers which are fortified with secondary and micronutrients such as molybdenum (Mo) and zinc are given additional subsidy.
Issues in the fertilizer subsidy system:
1. Leakages:
● Most of the ureas are diverted to non-agriculture purposes such as industries buying ureas.
● About 10 lakh tonnes of agriculture-grade urea is getting diverted every year. The subsidized urea is getting diverted mainly to industries.
2. Reduced soil fertility:
● Overuse of Fertilizers with imbalanced usage causes soil degradation.
3. No benefit to targeted groups:
● Every year around 6000 crore worth of leakages is happening in the fertilizer subsidies.
4. Bulk buying:
● At present, the Centre is following a “no denial” policy.
● Anybody, non-farmers included, can purchase any quantity of fertilisers through the PoS machines.
● It obviously allows for bulk buying by unintended beneficiaries, who are not genuine or deserving farmers.
● While there is a limit of 100 bags that an individual can purchase at one time, it does not stop anyone from buying any number of times.
5. Environmental effects:
● Higher usage of fertilizers causes contamination of the groundwater.
6. Fiscal burden:
● Fertilizer subsidies are increasing year by year.
Government initiatives:
1. Neem Coating of Urea:
● The Department of Fertilizers (DoF) has made it mandatory for all the domestic producers to produce 100% urea as Neem Coated Urea (NCU).
● The benefits of use of NCU are as under:-
○ Improvement in soil health.
○ Reduction in usage of plant protection chemicals.
○ Reduction in pest and disease attack.
○ An increase in yield of paddy, sugarcane, maize, soybean, Tur/Red Gram.
○ Negligible diversion towards non-agricultural purposes.
○ Due to slow release of Nitrogen, Nitrogen Use Efficiency (NUE) of Neem Coated Urea increases resulting in reduced consumption of NCU as compared to normal urea.
2. Gas Pooling Policy, 2015:
● All urea units would get gas at a uniform price. It seeks to change the industry dynamics in the Urea sector by leveling gas costs for all players.
3. Policy on Promotion of City Compost:
● The Government of India approved a policy on promotion of City Compost, notified by the DoF in 2016 granting Market Development Assistance of Rs. 1500/- for scaling up production and consumption of city compost.
● To increase sales volumes, compost manufacturers willing to market city compost were allowed to sell city compost in bulk directly to farmers.
● Fertilizer companies marketing city compost covered under the Direct Benefit Transfer (DBT) for Fertilizers.
4. 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.
5. Nano urea:
● It is urea in the form of a nanoparticle. It is a nutrient (liquid) to provide nitrogen to plants as an alternative to the conventional urea.
● It is developed to replace conventional urea and it can curtail the requirement of the same by at least 50%.
● It contains 40,000 mg/L of nitrogen in a 500 ml bottle which is equivalent to the impact of nitrogen nutrient provided by one bag of conventional urea.
6. Pradhan Mantri Bhartiya Jan uravarak Pariyojna(PMBJP):
● Under ONOF companies are allowed to display their name, brand, logo and other relevant product information only on one-third space of their bags.
● On the remaining two-thirds space, the “Bharat” brand and Pradhanmantri Bharatiya Jan Urvarak Pariyojana logo will have to be shown.
● The single brand name for UREA, Di-Ammonium Phosphate DAP, Muriate of potash (MOP) and Nitrogen Phosphorus Potassium NPK etc. would be BHARAT UREA, BHARAT DAP, BHARAT MOP and BHARAT NPK etc. respectively for all Fertiliser Companies, State Trading Entities (STEs) and Fertiliser Marketing Entities (FMEs).
● This scheme applies to both public & private sector companies.
● It will bring about uniformity in fertiliser brands across the country.
Way forward:
1. Self-Reliance:
● We need to be self-reliant and not depend on the import of fertilizers.
2. Extend NBS mode to Urea:
● We need to extend the NBS model to urea and allow for price rationalization of urea compared to non-nitrogenous fertilizers and prices of crops.
3. Organic Fertilizers:
● We need to shift towards non-chemical fertilizers like organic and biofertilizers and bring parity in prices and subsidies given to chemical fertilizers with organic and biofertilizers.
● This also provides the scope to use large biomass of crop that goes waste and enhance the value of livestock by-products.
4. Need based fertilization:
● India should pay attention to improving fertilizer efficiency through need-based use rather than using excess fertilizer in the field.