Challenges in Fertilizer Imports and the Impact of Global Conflicts on India’s Fertilizer Market

Sub : Eco

Sec :External sector

Overview of the Fertilizer Sector in India

Types of Fertilizers: The three primary fertilizers in India are Urea, Diammonium Phosphate (DAP), and Muriate of Potash (MOP).
India’s Position in Global Consumption: India is the second-largest consumer of fertilizers worldwide, following China.
Rising Demand for Urea and DAP:
- Urea and DAP usage has increased, while demand for other fertilizers has been declining, reflecting a shift in consumption patterns.

Breakdown of Key Fertilizer Types

Urea:
- Most Widely Used Fertilizer.
- Urea is highly subsidized.
Production Process:
- Urea is produced from natural gas.
- Methane in natural gas undergoes steam reforming to yield hydrogen.
- Hydrogen is then combined with nitrogen to produce ammonia, which can either be used as a fertilizer directly or converted to urea by reacting with carbon dioxide.
Diammonium Phosphate (DAP):
- Second Most Used Fertilizer in India, following urea.
- Composition: 46% Phosphorus and 18% Nitrogen.
- Phosphorus Source: DAP is the preferred phosphorus-based fertilizer among farmers, just as urea is preferred for nitrogen.
Muriate of Potash (MOP):
- Also known as potassium chloride, MOP contains 60% potash.
- Potash Role: Essential for plant growth and quality, potash aids in protein and sugar production, vital for overall plant health.

Subsidy Mechanism and Nutrient-Based Subsidy (NBS)

Urea Subsidies: As the most critical fertilizer, urea receives direct subsidies, covering a significant portion of its cost.
Nutrient-Based Subsidy (NBS):
- DAP and MOP producers and importers benefit from a Nutrient-Based Subsidy.
- The NBS formula provides subsidies based on the ratio of nutrients (N, P, and K), maintaining a 4:2:1 balance to support balanced fertilizer usage.

India’s Challenges in Fertilizer Imports

High Dependency on Imports:
- India meets 20% of its urea, 50-60% of DAP, and 100% of Muriate of Potash (MOP) demand through imports, creating a vulnerability to global market fluctuations.
Financial Strain from Subsidies:
- To mitigate high fertilizer costs, the Indian government has allocated ₹1.79 lakh crore in subsidies for 2023-24.
- Subsidy breakdown includes ₹1,04,063.20 crore for indigenous urea and ₹31,000 crore for imported urea.

Impact of Global Conflicts on India’s Fertilizer Market

Rising Prices of Raw Materials:
- The conflict in Ukraine has caused a spike in the prices of oil and petroleum-based raw materials used in fertilizers, leading to higher production costs globally and impacting Indian imports.
Supply Chain Disruptions:
- India’s primary fertilizer imports are sourced from regions like Russia, China, Saudi Arabia, and Egypt. Disruptions due to the Ukraine crisis and West Asian tensions affect these supply chains, causing shortages and higher import costs.
Impact on Agricultural Production and Food Security:
- Rising prices and supply chain issues pose risks to India’s food security as fertilizers like DAP and NPK are crucial for winter rabi crops.
Increased Dependence on Government Subsidies:
- With escalating prices, Indian agriculture’s reliance on government subsidies grows, increasing fiscal pressure on the national budget and impacting long-term food security.

Recommendations for India’s Fertilizer Sector

Innovative Fertilizer Use and Sustainable Practices:
- Nano-urea, natural farming, and precision fertilization techniques can help optimize fertilizer use and reduce import requirements.
- Focusing on self-reliance and sustainable agriculture practices will help counter long-term risks from global market disruptions.