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Lowering Gas Prices For Fertilisers

Context

In response to rising contracted gas prices as a result of the Ukraine war, the Central Government is discussing a mechanism to ensure better prices for fertiliser plants.

Relevance

GS Paper -2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Mains Question

LPG subsidy reduces public health burden and frees up women’s time. Disagree? analyse. (150 words)


Subsidy for Fertilizer

  • Farmers purchase fertilisers at MRPs (maximum retail prices) that are lower than their normal supply-and-demand market rates or the cost to produce/import them.
  • For example, the government has set the MRP of neem-coated urea at Rs 5,922.22 per tonne, whereas the average cost-plus price payable to domestic manufacturers and importers is around Rs 17,000 and Rs 23,000 per tonne, respectively.
  • The difference, which varies according to plant and import price, is borne by the Centre as a subsidy.
  • Non-urea fertiliser MRPs are decontrolled or fixed by the companies. To ensure reasonable prices, the Centre pays a flat per-tonne subsidy on these nutrients.

How is the Subsidy Paid and Who Receives It?

  • The subsidy is paid to fertiliser companies, but the ultimate beneficiary is the farmer who pays MRPs that are lower than market-determined rates.
  • Under the Direct-Benefit Transfer (DBT) system, subsidy payments to companies would occur only after retailers made actual sales to farmers.
  • Every retailer now has a point-of-sale (PoS) machine that connects to the Department of Fertilizers’ e-Urvarak DBT portal.
  • Anyone purchasing subsidised fertilisers must provide their Aadhaar unique identity number or Kisan Credit Card number.
  • A company can only claim a subsidy if the sale is registered on the e-Urvarak platform.

Government Schemes/Initiatives:

  • New Investment Policy 2012: o In January 2013, the government notified the New Investment Policy – 2012, with the main goal of facilitating new investment, making India self-sufficient, and reducing import dependency in the urea sector.
  • Neem-coated Urea: o Neem-coated urea is urea that has been coated with neem tree seed oil.
    • The Fertilizers Department has mandated that all domestic producers produce 100% urea as Neem Coated Urea (NCU).
    • NCU benefits include: slowing the urea nitrification process and increasing yield
  • Reduce urea consumption and thus save money
  • New Urea Policy 2015: o In May 2015, the New Urea Policy was released.
    • The Policy aims to increase indigenous urea production, promote energy efficiency in urea production, and reduce the Central Government’s subsidy burden.
  • Nutrient-Based Subsidy Scheme: In 2010, the Nutrient-Based Subsidy Program for fertilisers was launched.
    • The government announces an annual fixed rate of subsidy (in Rs per kg) for nutrients such as nitrogen (N), phosphorus (P), potassium (K), and sulphur (S) under the scheme.
    • It seeks to ensure the balanced use of fertilisers, improve agricultural productivity, promote the growth of the indigenous fertiliser industry, and reduce the subsidy burden.
  • Gas Pooling in Fertilizers: o The country currently has 30 urea producing units, 27 of which are gas-based and 3 of which are naphtha-based.
  • The government implemented the Gas Pooling Mechanism in 2015.
    • Through a pooling mechanism, it is intended to supply gas at a uniform delivered price to all fertiliser plants on the gas grid for urea production.

Way Forward

  • The central government should consider paying farmers a flat per-acre cash subsidy that they can use to buy any fertiliser.
  • The amount may differ depending on the number of crops grown and whether or not the land is irrigated.
  • This is a long-term solution to prevent diversion while also encouraging judicious fertiliser application with the appropriate nutrient (macro and micro) combination based on soil testing and crop-specific requirements.
  • Faced with rising contracted gas prices as a result of the Ukraine conflict, the Central Government has put suppliers on notice, including some global behemoths, and is discussing a mechanism to ensure better prices for fertiliser plants.
  • Fertilizer plants primarily obtain gas from three sources: domestic gas, LNG imports, and the spot market.
    • As a result of the Ukraine-Russia conflict, the sector is dealing with higher prices and decreased stability.
    • Russia is the world’s second largest natural gas exporter.
    • Russia is also the world’s second largest producer of muriate of potash (MOP) fertiliser.
    • India is entirely reliant on imports for MOP.
  • To combat rising gas prices, the Central Government plans to use an aggregator such as GAIL to procure fuel on behalf of Indian companies, as well as buy from gas exchanges or opt for shorter contracts.
  • The move comes as fertiliser subsidies are expected to rise to Rs. 2.5 lakh crore, as the Central government has decided to bear the cost rather than burden farmers with higher prices

 

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