Fertilizer subsidy

Fertilizer subsidy

Context: Prime Minister Narendra Modi on Saturday said the central government’s subsidy Bill for fertilisers will cross an estimated Rs 2 lakh crore this financial year — 25 per cent more than the fertiliser subsidy of the last financial year.

Fertilizer 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 difference between the retail price and production cost/domestic price is given as subsidy to manufacturers.

Present regime of fertilizer subsidy – Partial DBT (Since April 2018)

• The subsidy goes to fertiliser companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market-determined rates.
• Manufacturers of fertilizers (urea) receive 100% of subsidy after fertiliser is delivered to the farmer, and the latter’s identity viz. Aadhaar is captured on the point of sale (PoS) machine at the dealer’s shop.
• Therefore, the subsidy continues to be routed through manufacturers even though the sale of fertilizer is being verified using Aadhar ecosystem
• The manufacturers sell urea at the maximum retail price (MRP) controlled by the Centre, which is kept at a low level. They also get subsidy reimbursement on unit-specific basis under the new pricing scheme (NPS).
• 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 (based on Nutrient based Subsidy scheme)

How much subsidy does a farmer really get per acre?

For three bags urea, one bag DAP and half-a-bag MOP per acre, the farmer would spend a total of Rs 2,437 at existing MRPs. The corresponding subsidy value – at an average of Rs 13,000 per tonne (Rs 585/bag) for urea, Rs 511.55/bag for DAP and Rs 303.5/bag for MOP – will add up to Rs 2,418.3 per acre.

But then, farmers are also taxed on other inputs. Take diesel, where the incidence of excise and value added tax is Rs 42.19 on a litre retailing at Rs 70.46 in Delhi. On 30 litres of average per-acre consumption for paddy or wheat, that will be nearly Rs 1,266. So, for every Re 1 spent on fertiliser subsidy, more than half is recovered as diesel tax.

In addition, farmers pay goods and service tax (GST) on inputs, ranging from 12% on tractors, agricultural implements, pumps and drip/sprinkler irrigation systems to 18% on crop protection chemicals. Fertiliser itself is taxed at 5%. And since there’s no GST on farm produce, they cannot claim any input tax credit on their sales, unlike other businessmen.

Urea is being provided to the farmers at a statutorily notified Maximum Retail Price (MRP). The MRP of 45 kg bag of Urea is Rs. 242 per bag (exclusive of charges towards neem coating and taxes as applicable) and the MRP of 50 kg bag of Urea is Rs. 268 per bag (exclusive of charges towards neem coating and taxes as applicable). The difference between the delivered cost of fertilizers at farm gate and net market realization by the urea units is given as subsidy to the urea manufacturer / importer by the Government of India.

As far as Phosphatic and Potassic (P&K) fertilizers are concerned, Government is implementing Nutrient Based Subsidy (NBS) Scheme w.e.f 1.4.2010. Under the said scheme, a fixed amount of subsidy decided on annual basis, is provided on each grade of subsidized Phosphatic and Potassic (P&K) fertilizers depending upon its nutrient content. This subsidy is given by Goverment of India to the P&K fertilizer companies which are therefore able to provide P&K fertilizers to the farmers at a subsidized MRP, which is lower than it would have been. Accordingly, farmers across the country who are procuring fertilizers at MRP, is availing the benefit of subsidy.