Subsidy Mechanism for Fertilizers in India

What’s in Today’s Article?

• Why in the News?
• About Fertilizers
• Macro & Micro Elements in Fertilizers
• About Fertilizer Subsidy
• How is the Subsidy Paid & Who gets it?
• Government Schemes/Initiatives for Fertilizers
• Suggestions
• News Summary

Why in News?

• The Union Cabinet approved a Rs 22,303 crore subsidy on P&K fertilizers for the current Rabi season to ensure farmers continue to get soil nutrients at reasonable rates despite high global prices.

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 MRP of neem-coated urea, for instance, is fixed by the government at Rs 5,922.22 per tonne.
  • Whereas its average cost-plus price payable to domestic manufacturers and importers comes to around Rs 17,000 and Rs 23,000 per tonne, respectively.
• The difference, which varies according to plant-wise production cost and import price, is footed by the Centre as subsidy.
• The MRPs of non-urea fertilisers are decontrolled or fixed by the companies.
• However, the Centre pays a flat per-tonne subsidy on these nutrients to ensure reasonable prices.

How is the Subsidy Paid & Who gets it?

• The subsidy goes to fertiliser companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market-determined rates.
• Under the Direct-Benefit Transfer (DBT) system, subsidy payment to the companies would happen only after actual sales to farmers by retailers.
• Each retailer now has a point-of-sale (PoS) machine linked to the Department of Fertilisers’ e-Urvarak DBT portal.
• Anybody buying subsidised fertilisers is required to furnish his/her Aadhaar unique identity or Kisan Credit Card number.
• Only upon the sale getting registered on the e-Urvarak platform can a company claim subsidy.

Government Schemes/Initiatives

• New Investment Policy 2012:
  • The Government had notified New Investment Policy – 2012 in January, 2013 with the main objective to facilitate fresh investment, make India self-reliant and reduce import dependency in urea sector.
• Neem-coated Urea:
  • Urea that is coated with neem tree seed oil is called neem-coated urea.
  • The Department of Fertilizers has made it mandatory for all the domestic producers to produce 100% urea as Neem Coated Urea (NCU).
  • Benefits of NCU include:
    • Slow down the process of nitrification of urea
    • Enhance the yield
    • Decrease urea requirement, hence save money
• New Urea Policy 2015:
  • The New Urea Policy was released in May 2015.
  • The Policy seeks to:
    • Increase indigenous urea production,
    • Promote energy efficiency in urea production, and
    • Reduce subsidy burden on the Central government.
• Nutrient Based Subsidy Scheme:
  • Nutrient Based Subsidy Programme for fertilizers was initiated in 2010.
  • Under the scheme, a fixed rate of subsidy (in Rs per kg basis) is announced for nutrients namely Nitrogen (N), Phosphate (P), Potash (K) and Sulphur (S) by the government on an annual basis.
  • It aims at ensuring the balanced use of fertilizers, improving agricultural productivity, promoting the growth of the indigenous fertilizers industry and also reducing the burden of Subsidy.
• Gas Pooling in Fertilizers:
  • Currently, there are 30 urea producing units in the country, out of which 27 units are gas based and 3 units are Naphtha based.
  • Gas Pooling mechanism was introduced by the Government in 2015.
  • It is intended to supply gas at uniform delivered price to all fertilizer plants on the gas grid for production of urea through a pooling mechanism.
• One Nation One Fertiliser Scheme
  • Under the scheme, all fertiliser companies, State Trading Entities and Fertiliser Marketing Entities will be required to use a single “Bharat” brand for fertilisers and logo under the Pradhanmantri Bhartiya JanurvarakPariyojna (PMBJP).

Suggestions

• The Central government should consider paying farmers a flat per-acre cash subsidy that they can use to purchase any fertiliser.
• The amount could vary, depending on the number of crops grown and whether the land is irrigated or not.
• This is a sustainable solution to prevent diversion and also encourage judicious application of fertilisers, with the right nutrient (macro and micro) combination based on proper soil testing and crop-specific requirements.

News Summary

• The Union cabinet approved Rs 22,303 crore subsidy for nutrient-based phosphatic and potassic (P&K) fertilisers for the current Rabi season starting October 1.
• With global prices cooling down, the proposed outgo towards fertiliser subsidy will be 57% lower than the last Rabi season and 31% less than the Kharif season, which ended in September.
• The Centre’s fertiliser subsidy had shot up to a record of more than Rs 2.5 lakh crore last year following the spike in international prices in the wake of the war in Ukraine.
• For the current financial year, the government has allocated Rs 1.75 lakh crore subsidy for 2023-24.

Q1) What is the meaning of Minimum Support Price?

MSP is a form of government intervention to insure the farmers against a steep decline in the prices of their goods and to help them prevent losses. The government of India sets the MSP twice a year for 24 commodities.

Q2) What is meant by Zero Tillage Farming?

Zero tillage refers to the arable land on which no tillage is applied between harvest and sowing. Zero tillage is a minimum tillage practice in which the crop is sown directly into soil not tilled since the harvest of the previous crop.

Source: Cabinet approves Rs 22,303 cr subsidy on P&K fertilisers for Rabi crop season | ToI 

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