FERTILIZER SUBSIDY – POLITY
News: Cabinet
nod ₹1.08 lakh crore kharif fertilizer subsidy
What's in the news?
● With
fertilizer prices continuing to remain high due to global factors - such as a
fall in production and hiked logistics costs, especially due to the Ukraine
situation - the Centre expects this year’s fertilizer subsidy to cross ₹2.25
lakh crore.
● Accordingly,
the Union Cabinet approved a ₹1.08 lakh crore subsidy for the ongoing kharif or
monsoon season.
Key takeaways:
● For
farmers, urea and DAP prices will remain unchanged during the season.
● Due
to a global factors, imported fertilizer remains expensive, but annual subsidy
expected to be slightly lower than last year.
● The
rate of subsidy is based on the average price of fertilizer imported to the
country in the last six months.
Fertilizer production:
● India's
urea production to the total fertilizer production is around 86% and 52% of its
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.
Why fertilizer subsidy?
● The
fertilizer subsidy has helped insulate the farmers from the impact of a steep
increase in the cost of all fertilizers due to sharp rise in international
prices of fertilizers and raw materials.
Fertilizer subsidy in India:
● 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). (Retention Pricing)
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”. (Nutrient
Based 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:
● Over
use of Fertilizers with imbalanced usage causes soil degradation.
● Ideal
average NPK use ratio for the country is 4:2:1. This ratio was almost near to
ideal at 4.3:2:1 in 2009-10 but got distorted to 8.2:3.2:1 in 2012-13. This got
corrected to 6.5:2.8:1 during 2020-21. However, it again widened to 7.7:3.1:1 in 2021-22.
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 fertilizers 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.
● Every
year the amount of fertilizer subsidy is around 1.1% of the GDP.
7. Loss to Urea industries:
● The
viability of the urea industry is affected because of the delay in the approval
of minimum fixed cost and non-revision of fixed cost since 2002-03, except
nominal increase allowed under Modified NPS-III policy since 2014.
● Fixed
cost of urea has gone up drastically over 2002-03 and are significantly higher
than the level being reimbursed.
● It
does not take into account large investments made in recent years in energy
reduction projects and plant reliability expenditures.
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 urvarak Pariyojna
(PMBJP):
● Under
One Nation One Fertilizers, 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 fertilizer 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 Nutrient based subsidy (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.