Inclusion of Urea in Nutrient-Based Subsidy Regime
- 10 Jun 2023
- 10 min read
Why in News?
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.
- Currently, urea is excluded from the NBS scheme, which has led to disproportionate use and deteriorating soil health.
Commission for Agricultural Costs and Prices
- The CACP is a statutory body of the Ministry of Agriculture and Farmers Welfare, formed in 1965.
- Currently, the Commission comprises a Chairman, Member Secretary, one Member (Official) and two Members (Non-Official).
- The non-official members are representatives of the farming community and usually have an active association with the farming community.
- It is mandated to recommend Minimum Support Prices (MSPs) to incentivize the cultivators to adopt modern technology and raise productivity and overall grain production.
- CACP submits separate reports recommending prices for Kharif and Rabi seasons.
What is the Need for Urea to be Included under NBS Regime?
- Inadequate Supply of Natural Gas:
- Due to inadequate natural gas supplies, the capacity to produce urea fertilizer in India is limited, leading to an increase in imports. These imported urea fertilizers have a higher subsidy burden per tonne compared to domestic urea.
- Additionally, the high global prices of raw materials for complex fertilizers further complicate the government's efforts to contain fertilizer subsidies in the medium-term.
- As a result, the government's efforts to control fertilizer subsidies will face challenges in the medium-term, and subsidy amounts are likely to increase due to rising demand.
- Imbalanced Nutrient Usage:
- Over the years, the excessive use of urea in agriculture has contributed to worsening plant nutrient imbalance. Non-urea fertilizers like phosphorus and potassium are covered under the NBS, where subsidies are linked to their nutrient content.
- However, urea remains outside this regime, enabling the government to retain direct control over its maximum retail price (MRP) and subsidy.
- This discrepancy in pricing has led farmers to overuse urea, neglecting other essential nutrients and causing soil health degradation.
- Impact of Pricing Policies:
- While the MRP of urea has remained unchanged at Rs 5,360 per metric tonne (MT), the prices of other fertilizers, such as Diammonium Phosphate (DAP) have increased over time.
- The freedom granted 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 their rising prices.
- Consequently, the sales of urea have been significantly higher compared to other fertilizers, exacerbating the nutrient imbalance in agriculture.
What are the Recommendations?
- Bringing Urea under the NBS Regime:
- It will enable subsidies to be linked to the nutrient content of urea and promote the balanced application of fertilizers.
- Introducing a Cap on Subsidized Fertilizer Bags:
- The government should set a cap on the number of subsidised bags of fertilizers per farmer as has been done for subsidised LPG cylinders, to reduce the government’s subsidy burden.
- Leveraging Technology and Identification Systems:
- The CACP highlights the ease of implementing the proposed cap on subsidized fertilizers by utilizing Point of Sale devices installed at retailer shops.
- Beneficiaries can be identified through Aadhaar Card, Kisan Credit Card (KCC), Voter Identity Card, among other identification methods.
What is the NBS Regime?
- Under the NBS regime – fertilizers are provided to the farmers at 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.
- The subsidy on 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 will improve soil health and as a result the yield from the crops would increase, resulting in enhanced income to the farmers.
- It will make rational use of fertilizers; this would also ease off the burden of fertilizer subsidy.
What are the Challenges Related to NBS?
- Economic and Environmental Costs:
- The fertilizer subsidy, including the NBS policy, imposes a significant financial burden on the economy. It ranks as the second-largest subsidy after food subsidy, straining fiscal health.
- Additionally, imbalanced fertilizer usage due to the pricing disparity has adverse environmental consequences, such as soil degradation and nutrient runoff, impacting long-term agricultural sustainability.
- Black Marketing and Diversion:
- Subsidized urea is susceptible to black marketing and diversion. It is sometimes illegally sold to bulk buyers, traders, or non-agricultural users like plywood and animal feed manufacturers.
- Moreover, there are instances of subsidized urea being smuggled to neighboring countries like Bangladesh and Nepal, leading to the loss of subsidized fertilizers intended for domestic agricultural use.
- Leakage and Misuse:
- The NBS regime relies on an efficient distribution system to ensure that subsidized fertilizers reach the intended beneficiaries, i.e., farmers.
- However, there may be instances of leakage and misuse, where subsidized fertilizers do not reach farmers or are used for non-agricultural purposes. This undermines the effectiveness of the subsidy and denies genuine farmers access to affordable fertilizers.
- Regional Disparities:
- Agricultural practices, soil conditions, and crop nutrient requirements vary across different regions of the country.
- Implementing a uniform NBS regime may not adequately address the specific needs and regional disparities, potentially leading to suboptimal nutrient application and productivity variations.
- A uniform policy for all fertilizers is necessary, as nitrogen (N), phosphorus (P), and potassium (K) are crucial for crop yields and quality.
- In the long term, NBS could be replaced by a flat per-acre cash subsidy that allows farmers to purchase any fertilizer.
- This subsidy should encompass value-added and customized products that provide efficient nitrogen delivery and other essential nutrients.
- It is crucial to strike a balance between price control, affordability, and sustainable nutrient management to achieve the desired outcomes of the NBS regime.