The government has recently made headlines by increasing the subsidy on Di-Ammonium Phosphate (DAP) fertiliser to 140%. This move aims to maintain the selling price for farmers, amidst a spike in international prices of raw materials such as phosphoric acid and ammonia, used in DAP production, by about 60%-70%.
Insights into Di-Ammonium Phosphate (DAP)
DAP secures its position as the second most commonly utilised fertiliser in India, right after urea. This fertiliser is typically applied just before or at the start of sowing due to its high phosphorus content, which encourages root development. DAP, containing 46% Phosphorus and 18% Nitrogen, matches urea in being the farmer’s chosen source of Phosphorus, mirroring how urea, with 46% Nitrogen, is their preferred nitrogenous fertiliser.
An Overview of the Fertiliser Subsidy Scheme
In the current subsidy scheme, while the Maximum Retail Price (MRP) of urea is fixed, the subsidy can vary. In contrast, for DAP, the MRP fluctuates as the subsidy is fixed. All non-urea based fertilisers fall under the regulations of the Nutrient-Based Subsidy Scheme.
About Nutrient-Based Subsidy (NBS) Regime
The NBS regime offers fertilisers to farmers at subsidised rates, considering the nutrients contained in them. Additionally, fertilisers fortified with secondary and micronutrients like molybdenum (Mo) and zinc receive extra subsidies. The government annually announces the subsidy on Phosphatic and Potassic (P&K) fertilisers per kilogram of each nutrient, based on various factors such as international and domestic prices, exchange rate, and inventory level. By promoting the uptake of P&K fertilisers, NBS aims to achieve an optimum balance (N:P:K= 4:2:1) of NPK fertilisation, thereby improving soil health and crop yield, which can lead to increased income for farmers.
Issues Associated with NBS
The implementation of the NBS regime has led to several complications. First, price imbalance has emerged as urea, excluded from the scheme, remains under price control, leading to a substantial rise in the price of other fertilisers since 2010, while the price of urea has only increased by 11%. Second, with fertiliser subsidy being the second-largest after the food subsidy, questions have arisen about its impact on the fiscal health of the economy and soil health. Lastly, it has led to the black marketing of subsidised urea, with diversions to bulk buyers, traders, non-agricultural users, and even smuggling to neighbouring countries, further complicating the situation.
Implications of Increasing Subsidy on DAP
The recent increase in DAP subsidy carries significant implications. With the onset of the sowing operations for Kharif Crops, farmers’ access to subsidised fertilisers is crucial to control inflation. Politically, addressing farmer protests amidst the ongoing wave of Covid-19 could be advantageous for the government.
