The government has spent nearly ₹1.71 trillion on fertilizer subsidy in the first ten months of the current fiscal year, according to the minister of state for fertiliser Bhagwanth Khuba. This is 91% of the revised estimate of ₹1.88 trillion for 2023-24, which is down 25% from a record of ₹2.51 trillion in FY23 due to softening of global prices.
Why fertilizer subsidiy are important
Fertilizer subsidies are provided by the government to ensure adequate availability of fertilizers at affordable prices to farmers. Fertilizers are essential inputs for enhancing crop productivity and ensuring food security in the country. India is one of the largest consumers of fertilizers in the world, with an annual consumption of around 65 million tonnes (MT).
How fertilizer subsidy are implemented
The government has implemented Nutrient Based Subsidy (NBS) policy with effect from April 1, 2010, for Phosphatic and Potassic (P&K) fertilizers. Under this policy, a fixed amount of subsidy, decided on annual/semi-annual basis, is provided on notified P&K fertilizers depending on their nutrient content. The maximum retail price (MRP) is fixed by fertilizer companies as per market dynamics at a reasonable level which is monitored by the government.
For urea, which accounts for more than half of the total fertilizer consumption, the government provides subsidy to fertilizer units to sell it at a statutorily notified MRP of ₹266 per bag (45 kg), which is much lower than the cost of production of around ₹2650 per bag. Urea is also subject to neem coating to improve its efficiency and prevent its diversion for non-agricultural purposes.
What are the challenges and prospects
Fertilizer subsidies pose a huge fiscal burden on the government, which has been trying to rationalize them by promoting balanced use of nutrients, encouraging organic farming, and reducing leakages and inefficiencies in the supply chain. The government has also been exploring ways to bring urea under NBS regime and to introduce direct benefit transfer (DBT) scheme for fertilizer subsidies.
However, fertilizer subsidies also have positive impacts on farm incomes, crop yields, and food security. They also help in reducing the dependence on imports of fertilizers, especially P&K fertilizers, which account for about a third of the domestic consumption. India imports urea from countries like Oman, Egypt, UAE, South Africa, and Ukraine, and P&K fertilizers from countries like West Asia, Jordan, Belarus, Canada, etc.
The future of fertilizer subsidies depends on various factors such as global price movements, domestic demand and supply situation, technological innovations, environmental concerns, and policy reforms. The government has to balance the competing objectives of fiscal prudence, farmer welfare, and food security while designing and implementing fertilizer subsidy policies.
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