About Nutrient-Based Subsidy Regime

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Context:

Recently, the union cabinet has approved Nutrient Based Subsidy (NBS) rates for the various nutrients of Rabi and Kharif Season for 2022-23.

Relevance:

GS-III: Agriculture

Dimensions of the Article:

Under the Nutrient-based subsidy (NBS) regime – fertilizers are provided to the farmers at the subsidized rates based on the nutrients (N, P, K & S) contained in these fertilizers.
Also, the fertilizers which are fortified with secondary and micronutrients such as molybdenum (Mo) and zinc are given additional subsidy.
Under the Nutrient-based subsidy (NBS) regime, the subsidy on Phosphatic and Potassic (P&K) fertilizers is announced by the Government on an annual basis for each nutrient on a per kg basis – which are determined taking into account the international and domestic prices of P&K fertilizers, exchange rate, inventory level in the country etc.
NBS policy intends to increase the consumption of P&K fertilizers so that optimum balance (N:P:K= 4:2:1 ) of NPK fertilization is achieved.
This would improve soil health and as a result the yield from the crops would increase resulting in enhanced income to the farmers.
Also, as the government expects rational use of fertilizers, this would also ease off the burden of fertilizer subsidy.
It is being implemented from April 2010 by the Department of Fertilizers, Ministry of Chemicals & Fertilizers.

Urea is left-out in the scheme and hence it remains under price control as NBS has been implemented only in other fertilizers.
There is an imbalance as the price of fertilizers (other than urea) — which were decontrolled have gone up from 2.5 to four times during the 2010-2020 decade. However, since 2010, the price of urea has increased only by 11%. This has led to farmers using more urea than before, which has further worsened fertilizer imbalance.
Considering that fertilizer subsidy is the second-biggest subsidy after food subsidy, the NBS policy is not only damaging the fiscal health of the economy but also proving detrimental to the soil health of the country.
Subsidised urea is getting diverted to bulk buyers/traders or even non-agricultural users such as plywood and animal feed makers. It is being smuggled to neighbouring countries like Bangladesh and Nepal.