Reforming the fertilizer sector

News: A heavy increase in fertilizer subsidy bill is seen.

A brief background of fertilizer policy since 1991 reforms:

After years of unchanged prices, the budget of 1991 raised the issue prices of fertilizers by 40% on average. This rise was rolled down to 30% in a few months, with exemption to small and marginal farmers from the price increase. Due to opposition, the increase in Urea price was further rolled back to 17% over the pre-reform price.

-It resulted in a big shift in the composition of fertilizers used in the country in favor of urea and thus Nitrogen(N).

The government started Nutrient Based Subsidy (NBS)  in 2010 to address the growing imbalance in fertilizer use, which was skewed towards urea (N). However, only non-nitrogenous fertilizers P and K (phosphorus and potassium) were included in NBS; urea was left out.

What is the need for reforms in the fertilizer sector?

Firstly, It is putting a huge and unsustainable burden of rising fertilizer subsidy bills on the government exchequer. Fertilizer subsidy has doubled in a short period of three years between 2017-18 to 2021-22. At present, taxpayers bear 78% of the cost of urea and farmers pay only 22%.

Secondly, to promote the efficient use of fertilizers through the balanced use of N, P, and K (nitrogen, phosphorus, and potassium).

Thirdly, to reduce water and air pollution caused by the overuse of urea.

What are the challenges faced in reforming the sector?

A huge amount of fertilizer is imported into India due to limited domestic production capacity. Further, the international prices of fertilizers are volatile due to:

-Sharp upsurge in international energy prices, with which fertilizer prices are directly related.

–Supply constraints in major producing countries due to robust domestic demand, production cuts, and
export restrictions.

–Cartels of major global energy producers have a strong influence on prices.

What is the way forward?

In order to address the multiple goals of fertilizer policy, we need to simultaneously work on four key policy
areas.

Firstly, we need to be self-reliant and not depend on the import of fertilizers.

Secondly,  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.

-Distribution of price change over both price and subsidy based on some rational formula rather than just on subsidy.

Thirdly, We need to shift towards non-chemical fertilizers like organic and biofertilizers and bring parity in prices and subsidies given to chemical fertilizers with organic and biofertilizers.

-This also provides the scope to use large biomass of crop that goes waste and enhance the value of livestock by-products.

Finally, India should pay attention to improving fertilizer efficiency through need-based use rather than
using excess fertilizer in the field.

What are the steps already taken by the government?

For being self-reliant, five urea plants are being revived in the public sector. To increase the efficiency of fertilizer use, the recently developed Nano urea by IFFCO shows promising results in reducing the usage of urea.

Source: This post is based on the article “Reforming the fertilizer sector” published in The Hindu on 23 November 2021.