Nutrient-based subsidy

Context: Cap on subsidised fertiliser under nutrient-based subsidy (NBS) only addresses issue of its diversion, doesn’t fix overuse by farmers.

What is nutrient-based subsidy (NBS) regime for fertilisers?

• Under the scheme, a fixed amount of subsidy, based on the nutrient content present in them is provided on each grade of subsidized Phosphatic and Potassic (P&K) fertilizer except Urea.
• It was expected that the NBS scheme will control farmers from applying too much urea containing only nitrogen.

Was the Nutrient-Based Subsidy (NBS) regime successful?

• No, the actual results prove otherwise. Between 2009-10 and 2019-20, urea consumption increased.
• The reason for this is, Since April 2010, the maximum retail price (MRP) of urea has been raised by hardly 11 per cent.
• Whereas the MRPs of other fertilisers that were decontrolled, with the government only giving a per-tonne subsidy based on their nutrient content has gone up from 2.5 to four times during these 10 years.

What are the steps taken to prevent overuse of Urea?

• Compulsory neem-coating of all urea from December 2015.
• Making fertiliser subsidy payment to companies’ conditional upon actual sales to farmers being registered on point-of-sale machines with retailers after biometric authentication.
• Along with this, there is an upcoming plan to cap the total number of subsidised fertiliser bags that any person can purchase during an entire cropping season.

What is the reason for the policy failure?

• Urea Under-priced: The basic MRP of urea hasn’t been revised at all in its nearly six-and-a-half years. So, less cost leading to more consumption.
• Failed to bring urea under NBS: This would have pushed up its MRP thereby encouraging farmers for balanced use of fertilisers.
• Failed policy approach: Even, the measures taken to prevent over use of Urea merely address the issue of subsidised fertilisers, especially urea, getting diverted to bulk buyers/traders or even non-agricultural users. It does not address overuse by farmers themselves.

What is the way forward?

• Bringing urea under nutrient-based subsidy (NBS) regime.
• Increasing the MRP of Urea to Rs 10,000 per tonne over two years and simultaneously reducing the NBS rates of phosphorus, potash and sulphur.
• In the long run, NBS should be replaced by a flat per-acre cash subsidy that could be used to purchase any fertiliser.