Political impact on India’s fertilizer sector

Source: The post political impact on India’s fertilizer sector has been created, based on the article “Explained: Argument for deregulating non-subsidised fertilisers” published in “Indian Express” on 13th July 2024

UPSC Syllabus Topic: GS Paper3 -Agriculture -Issues related to direct and indirect farm subsidies.

Context: The article discusses the unlikely prospect of significant reforms in the fertilizer sector due to the current political situation. It suggests deregulating non-subsidised fertilizers as a possible step, similar to the existing model for water-soluble fertilizers, to improve efficiency and innovation.

For detailed information on Issue of fertilizer subsidy in India read this article here

What is the current political impact on fertilizer reforms?

1. Lack of Single-Party Majority: Current government’s failure to secure a single-party majority in Parliament has diminished the likelihood of major reforms in fertilizer pricing and subsidy policies.
2. Subsidy Budget Reduction: The fertilizer subsidy budget is decreasing, from Rs 251,339.36 crore in 2022-23 to Rs 163,999.80 crore in 2024-25, indicating fiscal constraints impacting reform decisions.
3. Impact of Russia-Ukraine War: The war has led to a decrease in import prices of key fertilizers, such as urea at $350 per tonne, DAP at $560, and MOP at $319, reducing the urgency for price reforms.

How are fertilizer prices currently controlled?

1. Urea Price Control: The maximum retail price (MRP) of urea is controlled and has remained unchanged since 2012 at Rs 5,360 per tonne, and Rs 5,628 with neem oil-coating from 2015.
2. Nutrient-Based Subsidy (NBS) Scheme: Under the NBS, non-urea fertilizers like like di-ammonium phosphate (DAP), muriate of potash (MOP), and single super phosphate (SSP) have technically decontrolled prices, but manufacturers receive a subsidy based on nutrient content. However, informal controls set “reasonable” MRPs, e.g., Rs 27,000 for DAP and Rs 30,000-31,000 for MOP.
3. Profit Margin Caps: Since April 2023, the government has capped profit margins to ensure MRP “reasonableness,” affecting subsidy eligibility for companies exceeding these limits.

What is the procedure for water-soluble fertilizers (WSFs)?

1. General Specifications Issued: In October 2015, the Indian government set general specifications for commercializing water-soluble fertilizers (WSFs), which are 100% soluble in water.
2. Nutrient Content Requirements: WSFs must contain a minimum of 30% total nutrients, including 25% primary nutrients (NPK) and the remainder comprising secondary and micro nutrients.
3. Contaminant Limits: There are maximum prescribed limits for contaminants like lead, cadmium, and arsenic.
4. Marketing Procedure: Companies can market any WSF that meets these specifications after notifying the relevant government authorities and waiting 30 days from the notification date.

What reforms are needed in India’s fertilizer sector in the current political situation?

1. Deregulate Non-Subsidized Fertilizers: Implement automatic registration for new fertilizers that meet minimum nutrient content and contaminant limits, similar to the current procedure for water-soluble fertilizers (WSFs).
2. Deregulate Liquid Fertilizers: Deregulate liquid fertilizers with a minimum of 15% total primary nutrients. Liquid fertilizers like urea ammonium nitrate have higher nutrient use efficiency, improving crop yields. This is similar to WSFs, which have nutrient use efficiency of 60-70%.
3. Simplify Regulatory Framework: Adopt simpler quality standards and mandatory labeling for all fertilizers. This ensures farmers have access to high-quality products without lengthy bureaucratic processes.

4.Remove Informal Price Controls: Lift informal price controls on NBS fertilizers, allowing market-driven pricing. Currently, prices are controlled indirectly, impacting competition and innovation.

5. Reduction in Registration Time: Reduce the average registration time for new fertilizers, currently 804 days, to align more closely with international standards like the US (90 days), 30 in Japan, or the EU (zero days), enhancing competitiveness and innovation.

Question for practice:

Discuss how the current political situation impacts the prospects for significant reforms in India’s fertilizer sector.