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.
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.