Fertilizer subsidy

Fertilizer subsidy

Subject: Economy

Section: Fiscal Policy

Context: Elevated global commodities prices are jacking up subsidy expenditure on fertilizers. Farmers in the country continue to be insulated from the relentless rise in global prices of urea and natural gas.

Another sharp hike in the subsidy would amount to an unraveling of the ‘decontrol’ of the two soil nutrients announced more than a decade ago. As India meets nearly half of its DAP requirement via imports (mainly from West Asia and Jordan) while the domestic MoP demand is met solely through imports (from Belarus, Canada and Jordan, etc.).

Absent in the increase of subsidy, domestic producers of DAP may have to increase its retail prices sharply

Concept:

Types of fertilizers:

• Primary fertilizers includes Nitrogen, Phosphorus, Potassium-
  • Nitrogenous – Urea
  • Phosphatic – Di-ammonium Phosphate
  • Potassic – Muriate of Potash (MoP) fertilizers.

• Secondary fertilizers include Calcium, Magnesium and Sulphur.
• Some micronutrients include – Zinc, Iron, Boron, Chloride etc.

Subsidy

• Subsidy on Urea: The Centre pays subsidy 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).

Farmers pay a fixed price of Rs 242 per bag (45 kg) which covers about 20% of cost of production, the balance is provided by the government as subsidy to fertilizer units.

• Subsidy on Non-Urea Fertilizers: Retail prices of phosphatic and potassic (P&K) fertilizers, including DAP  and Mop were ‘decontrolled’ ( or fixed by the companies) in 2010 with the introduction of a ‘fixed-subsidy’ regime as part of NBS mechanism.

The Centre, however, pays a flat per-tonne subsidy on these nutrients to ensure they are priced at “reasonable levels”.

Examples of non-urea fertilizers: Di-Ammonium Phosphate (DAP), Muriate of Potash (MOP).

The Nutrient Based Subsidy (NBS) Programme for Fertilizers was initiated in the year 2010.

Under the scheme, a fixed amount of subsidy decided on an annual basis is provided on each grade of subsidized Phosphatic and Potassic (P&K) fertilizers, except for Urea, based on the nutrient content present in them.

Apart from this, fertilizers which are fortified with secondary and micronutrients such as molybdenum (Mo) and zinc are given additional subsidy.

The scheme is administered by the Department of Fertilizers under the Ministry of Chemicals & Fertilizers. 

The subsidy on Phosphatic and Potassic (P&K) fertilizers is announced by the Government on an annual basis for each nutrient on a per kg basis.

These rates are determined taking into account the international and domestic prices of P&K fertilizers, exchange rate, inventory level in the country etc.

NBS policy intends to increase the consumption of P&K fertilizers so that optimum balance (N:P:K= 4:2:1 ) of NPK fertilization is achieved.

Other reform:

The Government has introduced the Direct Benefit Transfer (DBT) system in Fertilizers from October 2016 and the Pan-India Roll out has been completed by March, 2018. Under the fertilizer DBT system, 100% subsidy on various fertilizer grades is released to the fertilizer companies on the basis of actual sales made by the retailers to the beneficiaries. Sale of all subsidized fertilizers to farmers/buyers is made through Point of Sale (PoS) devices installed at each retailer shop and the beneficiaries are identified through Aadhaar Card, KCC, Voter Identity Card etc.