Fertilizers are crucial substances that assist in the growth and productivity of plants. In India, the most primary fertilizers include Urea, Di-Ammonium Phosphate (DAP), and Muriate of Potash (MOP). The government provides subsidy to fertiliser manufacturers, allowing farmers to procure these at below-market rates. The difference between the cost of production or import of a fertiliser and the amount paid by the farmers is absorbed by the government as a subsidy.
The Subsidy on Urea and Non-Urea Fertilisers
Urea is the most produced, imported, consumed, and physically regulated fertilizer in India. The subsidy on Urea is provided only for agricultural uses. The central government pays this subsidy to fertilizer manufacturers based on the cost of production at each plant. The manufacturers are required to sell the fertiliser at a government-set Maximum Retail Price (MRP), currently fixed at Rs 5,628 per tonne.
Non-urea fertilisers, on the other hand, have their MRPs decontrolled or fixed by the respective companies. However, the government has recently included these fertilisers under the control regime due to the global price surge as a result of the Russia-Ukraine war. All Non-Urea based fertilisers are regulated under Nutrient Based Subsidy (NBS) Scheme, with DAP and MOP being typical examples.
Initiatives Related to Fertilisers
There are several initiatives put forth by the Department of Fertilizers (DoF) to improve the use of fertilisers. For instance, the DoF has made it mandatory for all domestic producers to produce 100% urea as Neem Coated Urea (NCU). Also, other policies such as New Urea Policy (NUP) 2015 and Policy on Promotion of City Compost have been implemented for promoting indigenous urea production, energy efficiency, and the use of city compost. The DoF also commissioned a pilot study to utilise space technology in the fertiliser sector.
Issues Related to Fertiliser Subsidy
Despite the beneficial prospects of fertiliser subsidy, certain issues remain prominent. An imbalance in the price of fertilisers is one such issue, where the high subsidy on Urea and DAP makes these fertilisers much cheaper for farmers than other options. This disparity has led the farmers to use more urea and DAP than before. Nutrient imbalance is another concern as the use of Nitrogen (N), Phosphorus (P), and Potassium (K) has deviated from the ideal NPK use ratio of 4:2:1.
The Impact on Fiscal Health
Interestingly, fertilizer subsidies also impact the fiscal health of the economy. Subsidised urea often gets diverted to bulk buyers or even non-agricultural users, causing a significant financial burden on the government. Smuggling to neighbouring countries like Bangladesh and Nepal also contributes to this problem.
A Look at the Way Forward
Given the critical role of N (nitrogen), P (phosphorus), and K (potassium) in enhancing crop yields and quality, the government should adopt a uniform policy for all fertilisers. Replacing the NBS with a flat per-acre cash subsidy might be an effective solution. This subsidy should encapsulate not just other nutrients but also those that deliver nitrogen more efficiently than urea.
