• The Centre is working on a plan to cap the number of subsidised fertiliser bags that individual farmers can buy in any cropping season.
• Plan is to cap number of subsidised fertiliser bags that individual farmers can buy in any cropping season. Limiting consumption only to genuine farmers will reduce subsidy bill and diversion.
• For 2019-20, the total amount allocated to fertiliser subsidy was Rs.79,996 crore.
• Currently, government is following a “no-denial” policy: anybody, including non-farmers, can buy any quantity of fertiliser through POS machines.
• Subsidy is paid to companies only after sales to farmers are registered on POS machines.
• Department of Fertilizers implements different fertilizer subsidy schemes with different subsidy components.
• 3 basic types of fertiliser used are: urea, Diammonium Phosphate (DAP), and Muriate of Potash (MOP).
Key issues with fertiliser subsidy:
• Rising amounts of fertiliser subsidy in the budget and their financially sustainability,
• Extremely low prices of urea (N) leading to imbalanced use of N, phosphatic (P) and potassic (K),
• Misuse of urea, like diversion to neighbouring countries and its use for non-agricultural purposes;
• Lack of investment flows to the sector at home, leading to rising imports.
Types of subsidies for fertilizers:
• Urea Subsidy: Urea is sold at a Maximum Retail Price statutorily fixed by the Centre. The difference between delivered cost of urea at farm gate and net market realization by the urea units is given as subsidy to the urea manufacturer / importer.
• Nutrient Based Subsidy (NBS) Policy for phosphatic and potassic fertilizers provides a fixed rate of subsidy (in Rs. Per Kg basis) on each nutrient of subsidized phosphatic and potassic fertilizers. MRP of phosphatic and potassic fertilizers has been left open and fertilizer manufacturers / marketers are allowed to fix the MRP at reasonable rates.
Mains Paper 3: Economy
Prelims level: Nutrient Based Subsidy
Mains level: Key issues with fertiliser subsidy