In its non-price policy recommendations for the Kharif crops 2023-2024 season, the Commission for Agricultural Costs and Prices (CACP) has recommended that Urea should be brought under the Nutrient-Based Subsidy (NBS) regime to address the problem of imbalanced nutrient usage in agriculture.
GS-III: Agriculture, GS-III: Indian Economy (Growth and Development of Indian Economy, Mobilization of Resources)
Dimensions of the Article:
- Why is it necessary to include urea under the Nutrient-Based Subsidy (NBS) regime?
- About Nutrient-Based Subsidy Regime
- Issues Related to NBS
Why is it necessary to include urea under the Nutrient-Based Subsidy (NBS) regime?
Limited domestic production:
- India’s capacity to produce urea fertilizer is constrained due to inadequate natural gas supplies.
- This has led to a heavy reliance on imports, which incur higher subsidy burdens per tonne compared to domestic urea.
Global raw material prices:
- The high global prices of raw materials for complex fertilizers further complicate the government’s efforts to control fertilizer subsidies in the medium-term.
Rising demand and subsidy amounts:
- The government’s efforts to control fertilizer subsidies will face challenges in the medium-term as demand increases, resulting in a potential increase in subsidy amounts.
Imbalance in plant nutrients:
- Excessive use of urea in agriculture has contributed to a worsening plant nutrient imbalance.
- Non-urea fertilizers like phosphorus and potassium are already covered under the NBS, where subsidies are linked to their nutrient content.
- However, urea remains outside this regime, leading to overuse by farmers and neglect of other essential nutrients, ultimately causing soil health degradation.
Direct control over MRP and subsidy:
- Urea’s exclusion from the NBS allows the government to retain direct control over its maximum retail price (MRP) and subsidy.
- This pricing discrepancy has encouraged farmers to disproportionately rely on urea, disregarding other vital nutrients required for healthy crop growth.
- While the MRP of urea has remained unchanged, the prices of other fertilizers like Diammonium Phosphate (DAP) have increased over time.
- The freedom given to manufacturers of non-urea fertilizers to set MRPs within reasonable limits, along with fixed per-tonne subsidies based on nutrient content, has contributed to the rising prices of these fertilizers.
- Consequently, urea sales have significantly outpaced other fertilizers, exacerbating the nutrient imbalance in agriculture.
About Nutrient-Based Subsidy Regime
- 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.
Issues Related to NBS
- 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.
-Source: PIB, Down To Earth