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Paper 3- Reforms in fertiliser sector

Paper 3- Reforms in fertiliser sector



Several attempts have been made to reform the fertilizer sector to keep a check on the rising fertilizer subsidy bill.

Need for reforms on three fronts

  • Three areas: Reforms are needed to promote:
  • 1) The efficient use of fertilizers.
  • 2) To achieve balanced use of N, P and K (nitrogen, phosphorus and potassium).
  • 3) To reduce water and air pollution caused by fertilizers like urea.

Challenges in the fertiliser sector

A] Distortion in use due to price difference

  • The Union Budget of July 1991 raised the issue prices of fertilizers by 40% on average.
  • Due to opposition to increase fertilizer prices, the increase in the price of urea was rolled back to 17% a year later over the pre-reform price.
  • The shift in the composition of fertiliser used: This change disturbed the relative prices of various fertilizers and resulted in a big shift in the composition of fertilizers used in the country in favour of urea and thus N.
  • Farmers tended to move towards balanced use, but policy and price changes reversed the favourable trend a couple of times in the last three decades.
  • In 2019-20, fertilizer use per hectare of cultivated area varied from 70 kg of NPK in Rajasthan to 250 kg in Telangana
  • Further, composition of total plant nutrients in terms of the N,P,K ratio deviated considerably from the recommended or optimal NPK mix.
  • It was 33.7:8.0:1 in Punjab and 1.3:0.7:1 in Kerala.

2] Increasing fertiliser subsidy

  • Fertilizer subsidy has doubled in a short period of three years. For 2021-22, the Union Budget has estimated fertilizer subsidy at ₹79,530 crore (from ₹66,468 crore in 2017-18).
  • The subsidy is likely to reach a much higher level due to the recent upsurge in the prices of energy, the international prices of urea and other fertilizers, and India’s dependence on imports.
  • In order to minimise the impact of rise in prices on farmers, the bulk of the price rise is absorbed by the government through enhanced fertilizer subsidy.
  • This is likely to create serious fiscal challenges.
  • At current prices, farmers pay about ₹268 per bag of urea and the Government of India pays an average subsidy of about ₹930 per bag.
  • Thus, taxpayers bear 78% of the cost of urea and farmers pay only 22%. This is expected to increase and is not sustainable.

3] Import dependence

  • Total demand for urea: The total demand for urea in the country is about 34-35 million tonnes (mln t) whereas the domestic production is about 25 mln t.
  • The requirement of Diammonium Phosphate (DAP) is about 12 mln t and domestic production is just 5 mln t.
  • This leaves the gap of nearly 9-10 mln t for urea and 7 mln t for DAP, which is met through imports.
  • The use of Muriate of Potash is about 3 mln t.
  • This is entirely imported.
  • The international prices of fertilizers are volatile and almost directly proportional to energy prices.

Way forward

  • Self-reliance: we need to be self-reliant and not depend on import of fertilizers.
  • In this way, we can escape the vagaries of high volatility in international prices.
  • In this direction, five urea plants at Gorakhpur, Sindri, Barauni, Talcher and Ramagundam are being revived in the public sector.
  • Extend NBS model to urea: The government introduced the Nutrient Based Subsidy (NBS) in 2010 to address the growing imbalance in fertilizer use.
  • However, only non-nitrogenous fertilizers (P and K) moved to NBS; urea was left out.
  • We need to extend the NBS model to urea and allow for price rationalisation of urea compared to non-nitrogenous fertilizers and prices of crops.
  • Develop alternative sources of nutrition for plants: Discussions with farmers and consumers reveal a strong desire to shift towards the use of non-chemical fertilizers as well as a demand for bringing parity in prices and subsidy given to chemical fertilizers with organic and biofertilizers.
  • This also provides the scope to use a large biomass of crop that goes waste and enhance the value of livestock byproducts.
  • We need to scale up and improve innovations to develop alternative fertilizers.
  • Improve fertiliser efficiency:  India should pay attention to improving fertilizer efficiency through need-based use rather than broadcasting fertilizer in the field.
  • The recently developed Nano urea by IFFCO shows promising results in reducing the usage of urea.

Nutrient Based Subsidy

  • Under the NBS regime – fertilizers are provided to the farmers at subsidized rates based on the nutrients (N, P, K & S) contained in these fertilizers.
  • Also, the fertilizers which are fortified with secondary and micronutrients such as molybdenum (Mo) and zinc are given additional subsidy.
  • The subsidy on Phosphatic and Potassic (P&K) fertilizers is announced by the Government on an annual basis for each nutrient on a per kg basis – which are determined taking into account the international and domestic prices of P&K fertilizers, exchange rate, inventory level in the country etc.
  • NBS policy intends to increase the consumption of P&K fertilizers so that optimum balance (N:P:K= 4:2:1) of NPK fertilization is achieved.