Centre enhances subsidy for non-urea fertilizers

April 28, 2022

In News:

With prices sky-rocketing due to the ongoing Ukraine-Russia conflict, the Union Cabinet has recently approved a subsidy of more than Rs 60,000 crore for non-urea fertilisers for the first six months of this financial year.

What’s in today’s article:

About Fertilizers (Meaning, Use, Types)
How Subsidy Works (Mechanism, Government Schemes, Beneficiaries, Way Forward)
News Summary

About Fertilizers:

A fertilizer is a chemical product either mined or manufactured material containing one or more essential plant nutrients that are immediately or potentially available in sufficiently good amounts.
Fertilizers have played an essential role in agricultural production, providing vital nutrients for crops, thereby increasing their demands over the years.
As an agrarian country, India is home to numerous small and marginal farmers and is often plagued by low productivity and low quality.
Crops are mainly rain-fed and cultivated on a single piece of land over time, decreasing soil fertility in many regions.
Thereby, increasing quantities of nitrogen fertilizers have been used in the country.

Macro & Micro Elements in Fertilizers:

Macro Nutrients: Nitrogen (N), Phosphorus (P), Potash (K), Calcium, Sulfur (S), and Magnesium are known as macro-nutrients (required in comparatively larger amounts).
Micro Nutrients: Iron (Fe), Zinc (Zn), Copper, Boron, Manganese Molybdenum, Chloride, and others are the micro-nutrients (required in a smaller quantity) for the growth and development of crop plants.
Among the various types, NPK (nitrogen, phosphorus, and potassium) fertilizers are the most common ones, and Urea stands as the most highly consumed fertilizer in India.
India is the second-largest consumer of fertilizers globally, with an annual consumption of more than 55.0 million metric ton.

About 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 -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:

Nutrient Based Subsidy Scheme, 2010:
- Under the scheme, a fixed rate of subsidy based on the weight (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.
- Urea is not covered under the scheme and due to delay in NBS subsidy payments, Fertilizer companies focus more on Urea than other fertilizers. Hence, the ideal ratio of NPK is disrupted
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 2015:
- 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.
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.

Way Forward:

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:

With prices sky-rocketing due to the ongoing Ukraine-Russia conflict, the Union Cabinet has recently approved a subsidy of more than Rs 60,000 crore for non-urea fertilisers for the first six months of this financial year.
- This is almost 45.23% more than the Budget Estimates for non-urea fertilisers for the entire FY-23.
This will enable companies to continue selling the vital soil nutrients at affordable rates to farmers.