Fertilizer subsidy

Fertilizer subsidy

Subject : Economy

Context:

The Cabinet Committee on Economic Affairs has approved a ₹51,875 crore subsidy for phosphatic and potassic fertilizers for the rabi season.

Details:

It is in accordance with a commitment to ensure the availability of P&K (phosphatic and potassic) fertilizers to the farmers at affordable prices and international volatility in prices of fertilizers.

Concept

The subsidy on P&K fertilizers, which includes support for indigenous fertilizer through freight subsidy, will be provided on the basis of the nutrient-based subsidy (NBS) rates approved by the CCEA.

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 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.

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.
  • 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 a 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)

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.