Planned changes to NBS Scheme

Context: Centre is planning to restrict the number of fertiliser bags that individual farmers can buy during any cropping season under the Nutrient Based Subsidy(NBS) Scheme.

Background

• A policy of subsidising fertilisers was started in the later period of the Green revolution to increase agriculture production.
• It resulted in the increased production of food grains and made India self-sufficient in difficult times.
• But excessive subsidisation of Urea led to its overuse, led to the worsening of soil quality.

Need for this new system

MRP of Urea and Other fertilisers

• Due to the present system, Since April 2010, the maximum retail price (MRP) of urea has been raised by hardly 11 per cent. Whereas the MRP of other fertilisers has gone up from 2.5 to four times during the same period.

Increasing usage of Urea consumption

• Nutrient Based Subsidy(NBS) was expected to wean away farmers from applying too much urea containing only nitrogen by linking subsidy to nutrient composition rather than products.
• Between 2009-10 and 2019-20, urea consumption rose from 26.7 million tonnes (MT) to 33.7 mt. While overall fertiliser consumption increased from 53.4 MT to 61.7 MT, urea’s share went up from below half to 54.6 per cent during this period.

Ineffective measures

• Measure like compulsory neem-coating of all urea (from December 2015) and making payment of fertiliser subsidy payment to companies conditional upon actual sales to farmers have not been effective.

Diversion of resources under Nutrient Based Subsidy scheme

• Due to its subsidy-led low price, urea is always prone to diversion for non-agricultural use like binder by plywood/particle board makers, cheap protein source by animal feed manufacturers or adulterant by milk vendors.
• Even after the implementation of PoS machines, anybody, non-farmers included, can purchase any quantity of fertilisers through the PoS machines. Moreover, it only put a cap of 100 bags per purchase, a person can make this amount of purchase any number of times.

Impacts of excessive urea

• Indian soils have relatively low nitrogen use efficiency (average of 22% estimated in 2008). The bulk of the urea applied contaminates ground- and surface water and the atmosphere.
• While the ammonia gets converted to nitrates, it increases soil acidity, NOx gases are major air pollutants.
• Nitrate contamination of groundwater, which leads to conditions such as methemoglobinemia (commonly known as a blue baby syndrome), has reached far beyond the WHO safe limit.

Calculation of subsidies for Urea and Non-Urea products 

• MRPs (maximum retail price) is the price at which farmers can purchase fertilisers from the market. MRP is fixed after deduction of subsidies.
• While the MRP of neem-coated urea, for instance, is fixed by the government, MRPs of non-urea fertilisers has been decontrolled and is being fixed by the companies.

Methods of calculation of subsidies on Urea

• In case of Urea products, due to price regulation by the government, the price has been set at Rs 5,922.22 per tonne, against its average cost-plus price of around Rs 17,000 and Rs 23,000 per tonne for domestic manufacturers and importers respectively.
• 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.

Calculation of subsidies to Non-Urea fertilisers under Nutrient Based Subsidy (NBS)

• In the case of non-urea fertilisers, MRP has been De-regularised and the government pays a flat per-tonne subsidy on the basis of nutrients mix in the fertiliser, to ensure they are priced at “reasonable levels”.
• The per-tonne subsidy is currently Rs 10,231 for di-ammonium phosphate (DAP), Rs 6,070 for muriate of potash (MOP) and Rs 8,380 for the popular ‘10:26:26’ complex fertiliser, due to their mix of nutrients. That is why the decontrolled fertilisers price way above the Urea.

Process of claiming subsidy

• Before 2018, fertiliser companies were receiving subsidies after their bagged material had been dispatched and received at a district’s railhead point or approved godown.
• In 2018, Direct Benefit Transfer (DBT) system was introduced. Now, Fertiliser companies receive subsidies after the actual sales of fertilisers to farmers.
• Around 2.3 lakh retailers all around the country have point-of-sale (PoS) machineries. PoS machines are linked to Department of Fertilisers’ e-Urvarak DBT portal.
• Anyone buying fertilisers have to provide their Aadhaar unique identity or Kisan Credit Card number. PoS devices will capture details like quantities of the individual fertilisers purchased, along with the buyer’s name and biometric authentication.
• Now on the basis of these registered information on e-Urvarak platform, a company can claim subsidy.

Effectiveness of the step

• Capping the total number of subsidised fertiliser bags will only be able to address the issue of diversion of Urea to bulk buyers/traders or even non-agricultural users such as plywood and animal feed makers. It won’t fix the problem of overuse of Urea.

Way forward

• Urea should be covered under Nutrient Based Subsidy (NBS) and its MRP should be hiked, whereas the price of other components phosphorus, potash and sulphur should be reduced.
• A flat per-acre cash subsidy can be implemented that could be used to purchase any fertiliser, including value-added and customised products.
• A cap on the total number of subsidised fertiliser bags that any person can buy during an entire kharif or rabi cropping season should be implemented.

By implementing the provisions given above, the government will be able to realise the PM’s call for halving urea consumption by 2022.