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Proposal to Include Urea under Nutrient-Based Subsidy (NBS) Regime


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:

  1. Why is it necessary to include urea under the Nutrient-Based Subsidy (NBS) regime?
  2. About Nutrient-Based Subsidy Regime
  3. 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.

Price disparities:

  • 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

December 2023