Why in News?

• The Central government has brought di-ammonium phosphate (DAP), muriate of potash (MOP) and all other such fertilisers that receive nutrient-based subsidy (NBS) support under “reasonable pricing” controls.
• NBS fertilisers - unlike urea, whose maximum retail price (MRP) is fixed by the government - are technically decontrolled.

What’s in Today’s Article?

• What is the NBS Scheme?
• Decision Taken by the Central Govt w.r.t Non-Urea Fertilisers
• How will Companies’ “Unreasonable Profit” be Assessed?
• Significance of the New Guidelines of the DoF

What is the NBS Scheme?

• Fertilisers are essentially food for crops, which need nutrients (Primary [N, P, K)], Secondary [S, calcium, magnesium] and Micro [iron, zinc, copper, manganese, boron, molybdenum]) for plant growth and grain yield.
• Under the NBS scheme, introduced in April 2010, their MRPs are supposed to be market-determined and set by the individual companies selling them.
• The government merely pays a fixed per-tonne subsidy on each of these fertilisers, linked to their nutrient content or specific percentage of nitrogen (N), phosphorus (P), potassium (K) and sulphur (S).
• Unlike the earlier product-specific subsidy regime, NBS was intended to promote balanced fertilisation by discouraging farmers from applying too much urea (46% N), DAP (46% P plus 18% N) and MOP (60% K).
  • These are fertilisers with high content of a single nutrient.
• NBS was meant to encourage product innovation, as well as increased use of complex fertilisers (with lower amounts of N, P, K, and S) and single super phosphate - SSP (with just 16% P but 11% S).
• However, urea consumption rose by over a third since 2009-10, worsening the nutrient imbalance and leading to the failure of NBS.

Decision Taken by the Central Govt w.r.t Non-Urea Fertilisers:

• The Department of Fertilisers (DoF), Ministry of Chemicals & Fertilisers, has issued detailed guidelines for the evaluation of “reasonableness” of the MRPs for all non-urea fertilisers covered under NBS.
• The guidelines, to be effective retrospectively from April 1, 2023, have prescribed maximum profit margins that will be allowed for fertiliser companies -
  • 8% for importers,
  • 10% for manufacturers and
  • 12% for integrated manufacturers (those producing finished fertilisers as well as intermediates such as phosphoric acid and ammonia).
• Companies earning “unreasonable profit”, i.e. over and above the stipulated percentages, in a particular financial year (April-March) will have to refund the same to the DoF by October 10 of the following fiscal year.
• If they don’t return the money within the said time limit, an interest @12% per annum on a pro-rata basis would be charged on the refund amount from the next day of the end of financial year.
• The unreasonable profits would also get adjusted against subsequent fertiliser subsidy payments by the government.

How will Companies’ “Unreasonable Profit” be Assessed?

• The guidelines have mandated fertiliser companies to “self-assess” unreasonable profits, based on the cost auditor’s report along with audited cost data approved by their board of directors.
• This report and data have to be furnished to the DoF by October 10 of the following fiscal year.
• The DoF will then scrutinise the “reasonability of MRPs”, as submitted by the companies, by 28th February for each completed previous financial year.
• Following that, it will finalise a report on unreasonable profits earned (if any) and to be recovered from the companies.

Significance of the New Guidelines of the DoF:

• Non-urea fertilisers are already under informal price control, which will definitely continue till the Lok Sabha elections are over.
• The new guidelines impose indirect MRP controls on non-urea fertilisers by capping the profits that companies can earn from their sales.
  • These will be based on their “total cost of sales”, which would cover cost of production/ import, administrative overheads, selling and distribution overheads, and net interest and financing charges.
• This means, the new guidelines basically extend the regime of detailed cost monitoring and price control currently applicable on urea to other fertilisers.