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Centre Approves Subsidy on Key Fertilizers


On Wednesday, the government unveiled a subsidy of ₹22,303 crore for phosphatic and potassic (P&K) fertilizers during the current rabi season. It was announced that farmers would continue to have access to the crucial soil nutrient DAP (di-ammonium phosphate) at the existing price of ₹1,350 per 50 kg bag.


GS3- Issues related to Direct and Indirect Farm Subsidies and Minimum Support Prices

Dimensions of the article:

  1. Recent developments
  2. Nutrient-based subsidy scheme
  3. Challenges associated with the Nutrient-based subsidy scheme

Recent Developments

  • The Union Cabinet, presided over by Prime Minister Narendra Modi, has given its approval to the proposal presented by the Department of Fertilizers to establish the nutrient-based subsidy (NBS) rates for the 2023-24 rabi season, covering the period from October 1, 2023, to March 31, 2024, for P&K fertilizers.
  • Union Minister Anurag Thakur, in a press briefing, emphasized the government’s commitment to ensuring the availability of affordable fertilizers to farmers. He noted that an estimated ₹22,303 crore would be expended as a subsidy on P&K fertilizers for the rabi season.
  • In May, the Union Cabinet had already sanctioned a ₹38,000 crore subsidy for P&K fertilizers during the kharif season of 2023-24.
  • Furthermore, the rates for NPK (nitrogen, phosphorus, and potassium) will remain unchanged at ₹1,470 per bag, while SSP (single super phosphate) will be priced at approximately ₹500 per bag. The cost of MoP (muriate of potash) will decrease from ₹1,700 to ₹1,655 per bag.
  • The Cabinet has established the NBS rates at ₹47.02 per kg for nitrogen (N), ₹20.82 per kg for phosphorus (P), ₹2.38 per kg for potash (K), and ₹1.89 per kg for sulfur (S).
  • For the kharif season of 2023-24, the government had set a per kg subsidy rate of ₹76 for nitrogen, ₹41 for phosphorus, ₹15 for potash, and ₹2.8 for sulfur.
  • When questioned about the reduction in the per kg subsidy rates for N, P, K, and S, Mr. Thakur explained that international prices for finished products and raw materials had slightly decreased but remained high. Therefore, the government continued to provide subsidies to maintain the existing rates.
  • He also noted that the fertilizer subsidy had increased to nearly ₹2.55 lakh crore in the last fiscal year, compared to around ₹73,000 crore in 2014-15.

Nutrient-based Subsidy Scheme

  • In accordance with the Nutrient-based subsidy (NBS) system, fertilizers are made available to farmers at reduced prices based on the nutrients they contain, including nitrogen (N), phosphorus (P), potassium (K), and sulfur (S). Additionally, fertilizers enriched with secondary and micronutrients like molybdenum (Mo) and zinc receive an extra subsidy.
  • The NBS policy dictates that the government announces the subsidy for Phosphatic and Potassic (P&K) fertilizers on an annual basis, specifying the subsidy amount for each nutrient per kilogram. These determinations consider factors such as international and domestic prices of P&K fertilizers, exchange rates, and the inventory levels within the country.
  • The primary goal of the NBS policy is to promote the usage of P&K fertilizers to achieve an optimal nutrient balance (N:P:K = 4:2:1) in NPK fertilization. This approach is intended to enhance soil health and subsequently increase crop yields, leading to higher income for farmers. Moreover, by encouraging the rational use of fertilizers, the government anticipates a reduction in the fertilizer subsidy burden.
  • The NBS policy has been in effect since April 2010 and is administered by the Department of Fertilizers within the Ministry of Chemicals & Fertilizers.

Challenges Associated with NBS

  • Urea remains excluded from the NBS framework, thus continuing to be subject to price controls, while NBS has been applied to other types of fertilizers.
  • A significant imbalance exists in fertilizer pricing. Fertilizers, excluding urea, which were deregulated, have experienced price hikes ranging from 2.5 to four times during the period from 2010 to 2020. In contrast, the price of urea has increased by a mere 11% since 2010. This discrepancy has led to increased urea usage by farmers, exacerbating the fertilizer imbalance issue.
  • Considering that fertilizer subsidies rank as the second-largest subsidies after food subsidies, the NBS policy not only strains the financial well-being of the economy but also harms the soil quality in the country.
  • Subsidized urea is being diverted to bulk purchasers, traders, and even non-agricultural users like plywood and animal feed manufacturers. Furthermore, it is finding its way into neighboring countries such as Bangladesh and Nepal through illegal channels.

-Source: The Hindu

December 2023