- Faced with rising contracted gas prices following the Ukraine war, the Central government is discussing a mechanism to ensure better prices for fertiliser plants.
What’s in today’s article:
- Fertilizer subsidy (Mechanism, Government Schemes, Beneficiaries, Way Forward)
- News Summary
- 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.
- 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.
- 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.
- Faced with rising contracted gas prices following the Ukraine war, the Central government has put suppliers, including some global giants, on notice and is discussing a mechanism to ensure better prices for fertiliser plants.
- Fertiliser plants get gas supplies mainly from three sources – domestic gas, liquified natural gas (LNG) imports and spot market.
- Due to the Ukraine-Russia war, the sector is dealing with higher prices and lower stability.
- Russia is the second largest exporter of natural gas in the world.
- Russia is also the second largest producer of muriate of potash (MOP) fertiliser in the world.
- For MOP, India is wholly dependent on imports.
- To counter the rising gas prices, the Central government plants to get an aggregator like GAIL to procure the fuel on behalf of Indian companies or buying from gas exchanges or going for shorter contracts.
- The move comes as fertiliser subsidy is likely to rise to Rs. 2.5 lakh crore as the Central government has decided to bear the cost, instead of burdening farmers with higher prices.