Fertilizers Subsidy In India – A Perspective

We start this article with a question of need of providing subsidy to both farmers and consumers in India, by the Govt.

The need to provide farmers subsidy is to allow them to bear high input cost and to make farming a viable livelihood for those engaged. Apropos to it growing more crops and increasing agricultural growth rate is priority of Govt to fulfill growing population demand. On the other hand, Consumer (Generally poor section) should buy them at reasonable price and do not succumb to inflationary pressure in economy. High prices can make them vulnerable and deny them basic need of life. Govt aim to maintain equilibrium between both subsidies to rein macro policies on agriculture in economy.

Subsidies in India rose significantly to 125Lakh crore ( 65k for food security act) since past decade especially after food security act was passed.

Total Fertilizer subsidy : Total 72000 crore

  • 38K crore for domestic urea manufacturers
  • 12k crore for imported urea
  • 23K crore for decontrolled Phosphatic and Potassic fertilizes which are sold at indicative maximum retail prices (MRPs)

Urea prices are controlled or regulated in India for which govt. pays urea manufacturers the subsidy. eg:Lets say 1 tonne of urea is produced by a company costs 24000 inr (which is the retention price) but sold at 5000 inr (which is govt. notified sale price). The difference between 24k (Retention price) – 5k (Sale price) i.e 19k is the subsidy to the urea manufacturers by the govt.
For other phosphatic & pottasic fertilizer (P&K fertilizers) which are partially deregulated, are sold at indicative max retail price on the basis of macro nutrient present in them.

If only urea (which is one among many choices) is used as fertilizer which is hell cheap compared to P&K fertilizers, soil health worsen as serious imbalance in soil nutrients occur. This may also lead to rampant use of subsidized urea, growing subsidy burden on Govt, benefiting rich farmers. Hence the way forward is to bring soil health card or bring urea price on par with P & K fertilizers.

Urea and other Pottash and phosphatic fertilizers subsidy : Only urea prices are controlled or regulated in Indian economy, rest fertilizers are either partially decontrolled or totally decontrolled. For 22 partially decontrolled fertilizers, subsidy is paid to manufacturers on the basic of macro nutrient present in them, i.e NPKS (Nitrogen, Phosphorus, Potassium and Sulfur )

Let us have a look at urea subsidy for which payments to the manufacturers has been paid under NPS or New Pricing Scheme. The real intention behind NPS was to pay to the urea manufacturers on the basis of feedstock they use for preparing urea, say some use gas, other use naptha, oil etc.
So same subsidy or payment should be provided to the manufacturers who use same feedstock, but this remained on paper as govt. still continue to pay them unit wise, i.e if two manufacturing plants are using gas as feedstock, one will get different sum, other will get different sum.
Way Forward: There should be a uniform pricing scheme, as only 3 urea plants use naptha while 27 use gas in India, whereas earlier the pricing due to different feedstock used by manufacturing plants.

Govt. also pay subsidy for the potash and phosphatic fertilizer in the NBSS or Nutrient Based Subsidy Scheme on the basis of macro nutrient present in them, but still they are much costlier than the urea, which remain reason for worsening soil health as farmer prefer cheap fertilizer.
Way Forward: Bring urea price on par with NBSS fertilizers. The short cut govt, has gone for is the soil health card, i.e if soil health is worsening you should try different fertilizer not uniquely urea.

Recent policy related to fertilizer, Comprehensive new urea policy (Modi 2105):

  • Payment still unit wise (draw criticism). Hence bring Uniform Pricing Policy
  • Commission more plants in India to increase indigenous urea production, as i told you 8 million tonne urea is imported.
  • Promote energy efficiency by looking into right kind of feedstock and appropriate usage by increasing competitiveness (whereas govt. going opposite by paying them unit wise, where poor performing unit will be rewarded and fairly performing unit will be penalized)
  • Reduce subsidy burden on exchequer.

Follow up questions are welcome in comment section below.

  1. What is the issue of susbsidies in WTO, & how far has India justified its need for subsidies. Also how first world subsidies to its farmers diff. from countries like India giving subsidies to its farmers. Why NFSA is being questioned in WTO?

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