Reforming Fertilizer Sector - Daily Current Affair Article

Why in News:

  • Recently, the government has announced an increase of 140% in the subsidy amount of DAP (Diammonium phosphate) fertilizer.
  • Fertilizer subsidy has doubled in a short period of three years. For 2021-22, the Union Budget has estimated fertilizer subsidy at ₹79,530 crores (from ₹66,468 crore in 2017-18).
  • In the last 20 years, the price of urea has increased to ₹5.36 per kg in 2021 from ₹4.60 in 2001. In the same period, the Minimum Support Price of paddy increased by 280% and that of wheat by 230%. In other words, in 2001, 37.7 kg of wheat was required to buy one bag of urea (50 kg), which has now reduced to 13.3 kg.

Nutrient Based Subsidy Scheme

  • Nutrient Based Subsidy (NBS) Programme for Fertilizers was initiated in the year 2010.
  • Under the scheme, a fixed amount of subsidy decided on an annual basis is provided on each grade of subsidized Phosphatic and Potassic (P&K) fertilizers, except for Urea, based on the nutrient content present in them.
  • The scheme is administered by the Department of Fertilizers under the Ministry of Chemicals & Fertilizers.
  • In a recent development, the Cabinet Committee on Economic Affairs has approved the proposal of the Department of Fertilizers for the continuation of the Nutrient Based Subsidy (NBS) till 2019-20.
  • The continuation of the Nutrient Based Subsidy Scheme will ensure that an adequate quantity of P&K is made available to the farmers at a statutory controlled price.

Reasons for increase in Fertilizer Subsidy:

  • There are large subsidies based on end use—only agricultural urea is subsidized—which creates incentives to divert subsidized urea to industry and across the border. In fact, subsidized urea suffers from 3 types of leakages:

(i) 24 per cent is spent on inefficient urea producers

  • More inefficient the firm, the more subsidies it receives.

(ii) 41 per cent is diverted to non-agricultural uses and abroad

  • The 75 percent subsidy on agricultural urea creates a large price wedge which feeds a thriving black market diverting urea to industry and possibly across the border to Bangladesh and Nepal.

(iii) 24 per cent is consumed by larger, richer farmers.

  • On average this extra expenditure is 17 per cent, and in some states—Punjab, UP and Tamil Nadu—it is between 55 and 70 percent.

These leakages imply that only 35 per cent—about Rs. 17500 crore of the total urea subsidy of Rs. 50300 crores—reaches the intended beneficiaries, small and marginal farmers.

  • Underpricing urea, relative to other fertilizers, especially P & K, encourages overuse, which has resulted in significant environmental externalities, including depleted soil quality.
  • Multiple distortions—price and movement controls, manufacturer subsidies, import restrictions—feed upon each other, making it difficult to reallocate resources within the sector to more efficient uses.

Plant Nutrients:

  • Primary (Macro) Nutrients: Nitrogen (N), Phosphorus (P), and Potassium (K), Calcium (Ca), Magnesium (Mg), Sulphur (S)
  • Secondary (Micro) Nutrients: Boron (B), Chlorine (Cl), Copper (Cu), Iron (Fe), Zinc (Zn), etc.

They are classified based on the essential component in the fertilizer:

  • Nitrogenous: Essential Component is Nitrogen (N). Example: Urea, Ammonium Nitrate, Ammonium Sulphate
  • Potassic: Potassium Nitrate, Chile Saltpetre
  • Phosphatic: Super Phosphate, Triple Phosphate

Way Forward:

  • Fertilizer industry need to be made self-reliant and not depend on import of fertilizers. 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.
  • We need to extend the NBS model to urea and allow for price rationalization of urea compared to non-nitrogenous fertilizers and prices of crops.
  • Also, we need to develop alternative sources of nutrition for plants. There should be a 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 bio fertilizers.
  • 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.
  • Finally, 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. Such products should be encouraged.

Sources:

General Studies Paper 3
  • Issues related to direct and indirect farm subsidies