On Fertiliser subsidies – Farm dos and don’ts

Source: This post on Fertiliser subsidies has been created based on the article “Farm dos and don’ts” published in “Indian Express” on 8^th December 2023.

UPSC Syllabus Topic: GS Paper 3 Agriculture – Issues related to direct and indirect farm subsidies.

News: The article discusses the need and challenges with the rising fertiliser subsidies in India.

A detailed article on Fertiliser Subsidies can be read here.

Why is the Fertiliser subsidy bill increasing?

Despite the import prices of fertilisers such as Urea rising recently, the maximum retail prices for these fertilisers have remained the same. Other fertilisers like Di-Ammonium Phosphate (DAP) and Muriate of Potash (MOP), which aren’t formally price-controlled by the government, have also seen their prices frozen by preventing companies from charging more.

This has resulted in higher fertiliser subsidies.

What are Controlled and Decontrolled fertilisers?

Controlled fertiliser: Urea is the only fertilizer with statutorily controlled price & movement. For phosphatic & potassic (P&K) fertilizers, the Department of Fertilizers provides an indicative Maximum Retail Price at which they are to be sold. The Government pays the difference between controlled price and market price to the fertiliser company.

Decontrolled fertilisers: The MRPs of non-urea fertilisers (such as DAP, MOP) are decontrolled and are fixed by the companies in the open market. The Centre, however, pays a fixed per-tonne subsidy on these nutrients to ensure they are priced at “reasonable levels”.

What is the importance of fertiliser subsidies?

1. Boost Agricultural Production: An adequate supply of fertilisers will increase agricultural production. For instance, DAP is a crucial fertilizer for growing cotton in the western and northern regions of India.
2. Cushioning Farmers from Price rise: It shielded farmers from the global price shocks post the Russia-Ukraine war.

What are the issues with Fertiliser subsidies?

1. High Burden on Exchequer: The Centre’s fertiliser subsidy outgo, which was Rs 81,000 crore in 2019-20, has shot up to Rs 1.5 lakh crore in 2021-22 and Rs 2.5 lakh crore in 2022-23.
2. Environmental Cost: The fertiliser subsidy has incentivised use of urea and DAP over other fertilisers. This has resulted in skewed Nitrogen : Phosphorus : Potassium (NPK) ratio. For the recent kharif cropping season, this ratio was estimated at close to 11:5:1, as against an ideal ratio of 4:2:1. This has adversely impacted soil health as well as crop productivity.
3. Health Impacts: Overuse of fertilizers also pollutes groundwater and streams. Infants who drink water with high levels of nitrate (or eat foods made with nitrate-contaminated water) may develop disorders (such as the Blue-Baby Syndrome).

What should be done?

According to the author, there are two things that the government must do:

Bring urea under the nutrient-based subsidy regime: Decontrol fertilisers and bring in a per-tonne subsidy linked to the fertiliser’s nutrient content. This way, farmers will start looking beyond urea.

Extend the subsidy on a per-hectare basis: The government should let farmers buy any kind of fertiliser using this money.
It will also force companies to come out with new value-for-money fertiliser products that are crop-, soil- and agro climatic region-specific.

Question for practice:

India’s fertiliser subsidy bill has been rising continuously. Discuss the various reasons behind it. What steps should be taken to counter the ill-effects arising due to it?