Context: According to data from the Ministry of Chemicals and Fertilisers, the sale of urea and di-ammonium phosphate (DAP) increased by 3.7% and 16.9%, respectively, from April-October 2022 over the previous year.

• This has come even as sales of other fertilisers including complexes containing nitrogen (N), phosphorus (P), K (potash) and sulphur (S), have fallen.

Background

• Two ambitious schemes of the Government of India – Soil Health Card and mandatory neem-coating of urea, were supposed to promote the balanced use of fertilisers.

• However, the annual consumption of urea (30 to 35 mt in the last 5 years) and DAP have grown over the years.

• This means, instead of providing a balanced mix of plant nutrients based on soil testing and crop requirements, Indian farmers are applying only urea and DAP – both containing 46% N and P, respectively.

Rise in the sales of nitrogenous fertilizers

• Rise in sales of not only urea but also DAP: This year, not only have urea sales gone up by 3.7 per cent during April-October over the same period of 2021, it has grown even more, at 16.9 per cent, for di-ammonium phosphate (DAP).

• Sales are not in correct proportion: It has come even as sales of all other fertilisers including complexes containing nitrogen (N), phosphorus (P), K (potash) and sulphur (S) in different proportions have fallen.

• Urea and DAP are the dominant choice of Indian farmers: In other words, instead of balanced use of plant nutrients based on soil testing and specific crop requirement, Indian farmers are effectively applying just urea and DAP both high-analysis fertilisers containing 46 per cent N and P respectively.

Fertilizer subsidy

• It arises because the Centre directs manufacturers/importers to sell fertilizers to farmers at a low maximum retail price (MRP), unrelated to the cost of supply, which is much higher. In the case of urea, the difference is reimbursed to the manufacturers as a subsidy on a ‘unit-specific’ basis.

• In the case of phosphate and potash (P&K) fertilizers (call them non-urea fertilizers), it fixes ‘uniform’ subsidies on a per-nutrient basis for all expected manufacturers and importers to deduct this from the cost to arrive at MRP.

How is the subsidy paid and who gets it?

• The subsidy goes to fertilizer companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market-determined rates.

• From March 2018, a direct benefit transfer (DBT) system was introduced, wherein subsidy payment to the companies would happen only after actual sales to farmers by retailers.

• Each retailer has a point-of-sale (PoS) machine linked to the Department of Fertilisers’ e-Urvarak DBT portal.

• Anybody buying subsidized fertilizers is required to furnish his/her Aadhaar unique identity or Kisan Credit Card number.

• The quantities of the individual fertilizers purchased, along with the buyer’s name and biometric authentication, have to be captured on the PoS device.

• Only upon the sale getting registered on the e-Urvarak platform can a company claim subsidy, with these being processed on a weekly basis and payments remitted electronically to its bank account.

Issues related to fertilizer subsidy
Price imbalance

• The high subsidy on urea and DAP makes them much cheaper for farmers relative to other fertilizers.

• The maximum retail price (MRP) of urea is currently fixed at Rs 5,628 per tonne.

• Companies are obliged to sell at this administered price, with their higher cost of production or imports being reimbursed as a subsidy by the Centre.

• The other fertilizers are technically “decontrolled” since April 2010, with the Centre only paying a fixed per-tonne subsidy to ensure “reasonable levels” of prices.

• Urea is retailing at a fourth of the price of packed common salt, DAP has also become far cheaper than popular NPKS complexes.

Nutrient imbalance

• The use of nitrogen (N), phosphorous (P) and potassium (K) in the country has over the last few years sharply deviated from the ideal NPK use ratio of 4:2:1.

• Urea and DAP are high-analysis fertilizers, containing more than 30 percent of any single nutrient.

• Urea has 46 percent N, while DAP has 46 percent and also 18 percent N.

• Low pricing and high sales of these two fertilisers result in nutrient imbalance owing to their use could have implications for soil health, ultimately affecting crop yields.

Key Suggestion

• The government should replace subsidies on individual fertiliser products with a flat per-hectare cash transfer

• Every farmer can have an e-wallet account, which can be used only for the purchase of fertilisers.

• Maintaining a stock of decontrolled fertilisers to ensure no unexpected price increases.

Conclusion

• Under-pricing of urea (a historical phenomenon) and DAP (recent) is a product of subsidy-induced market distortions. Thus, concerns over soil nutrient imbalances should take precedence over electoral politics.