Fertilizer Sector Reforms

Since 1991, when economic reforms began in India, several efforts have been made in the fertilizer sector to curb rising fertilizer subsidy bills, promote efficient use of fertilizers, achieve balanced use of N, P and K (Nitrogen, phosphorus and potassium), and reduce water and air pollution caused by fertilizers such as urea.

increase in subsidy

The Economic Survey of 1991-92 states that the prices of fertilizers remained almost unchanged from July 1981 to July 1991. The Union Budget of July 1991 increased the prices of fertilizers by an average of 40%. But from August that year it was reduced to 30% and small and marginal farmers were exempted from the price hike. The Economic Survey further states that despite this 30% increase, fertilizer subsidy remains substantial and needs to be reduced further. Due to opposition to the increase in fertilizer prices, the increase in the price of urea was brought back to 17% of the pre-reformed price a year later.

This change disturbed the relative prices of various fertilizers and resulted in a major change in the composition of fertilizers used in the country in favor of urea and thus N. The ratio of N:P:K usage increased from 5.9:2.4:1. From 1991-92 to 9.7:2.9:1 in 1993-94. Farmers turned to balanced use, but policy and price changes reversed the favorable trend twice over the past three decades. Thus, there has been little success on any of the three fronts. Instead, there has been an uncontrolled increase in subsidy on urea, both indiscriminate and unbalanced use of fertilizers due to near-freezing of MRP of urea over different time periods and its increasing sales.

Concerned about the adverse environmental impact of some chemical fertilizers, some sections of the society suggest the use of organic fertilizers and biofertilizers instead. There is a growing demand for providing subsidies and other incentives for organic fertilizers and biofertilizers provided for chemical fertilizers.

Fertilizer subsidy has doubled in a short span of three years. For 2021-22, the Union Budget has projected fertilizer subsidy at ₹79,530 crore (from ₹66,468 crore in 2017-18), but due to the recent surge in energy prices, international prices are likely to reach much higher levels. Is. of urea and other fertilizers, and India’s dependence on imports.

In 2019-20, fertilizer use per hectare of cultivated area ranged from 70 kg NPK in Rajasthan to 250 kg in Telangana. This gap was wide at the district level. In addition, the total plant nutrient composition in terms of N, P, K ratio deviated significantly from the recommended or optimal NPK mixture. It was 33.7:8.0:1 in Punjab and 1.3:0.7:1 in Kerala. This also accounts for inter-state disparities in fertilizer subsidies due to high variation in subsidy content, which is highly biased towards urea and thus nitrogen. As a result, the quantum of fertilizer subsidy in major states is in the ratio of 8:1.

The government introduced nutrient-based subsidies (NBS) in 2010 to address the growing imbalance in fertilizer use in many states, skewed towards urea (N). However, only non-nitrogen fertilizers (P and K) moved to NBS; Urea is released.

The total demand of urea in the country is around 34-35 million tonnes (million tonnes) while the domestic production is around 25 million tonnes. The requirement of diammonium phosphate (DAP) is around 12 million tonnes and the domestic production is just 5 million tonnes. This leaves a gap of around 9-10 million tonnes for urea and 7 million tonnes for DAP, which is met through imports. The utilization of muriate of potash is about 3 million tonnes. It is completely imported. Moreover, the consumption of complex fertilizers (NPKs) is around 12-13 million tonnes, which are largely produced within the country and hence the import requirement is only 1 million tonnes.

International prices of fertilizers are volatile and almost directly proportional to energy prices. In addition, cartels of major global producers have a profound effect on prices. Recently, there has been an increase in international prices, with urea prices rising to a record high of $900 per metric ton (MT) in November 2021 from around $270 per metric tonne in September 2020. Similarly, the international price of DApps has increased. From around $360 per MT in September 2020 to around $825 per MT in November 2021. These extraordinary price increases are due to a sharp jump in international energy prices and supply constraints caused by strong domestic demand, production cuts and export restrictions in major producing countries. It also coincides with the peak demand of Rabi season. In order to reduce the effect of price hike on farmers, the bulk of the price increase is absorbed by the government through increased fertilizer subsidy. This is likely to create serious fiscal challenges.

In the last 20 years, the price of urea has increased from Rs 4.60 per kg in 2001 to Rs 5.36 per kg in 2021. In the same period, the MSP for paddy has increased by 280% and that of wheat by 230%. In other words, the requirement of 37.7 kg of wheat to buy one sack (50 kg) of urea in 2001 has now come down to 13.3 kg. At current prices, farmers pay Rs 268 per bag of urea and the Indian government pays an average subsidy of around Rs 930 per bag. Thus, taxpayers bear 78% of the cost of urea and farmers pay only 22%. It is expected to grow and is not sustainable.

road ahead

To meet the multiple targets of the Fertilizer Policy, we need to work on four key policy areas at once. One, we need to be self-reliant and not depend on imports of fertilisers. In this way, we can avoid the uncertainty of high volatility in international prices. In this direction, five urea plants are being revived in the public sector at Gorakhpur, Sindri, Barauni, Talcher and Ramagundam.

Second, we need to allow the NBS model to be extended to urea and rationalize the price of urea compared to the prices of non-nitrogen fertilizers and crops. The present system of keeping urea price constant and absorbing all price increases in subsidy needs to be replaced by distribution of subsidy based on some rational formula along with price change.

Third, we have to develop alternative sources of nutrition for the plants. Discussions with farmers and consumers reveal a strong desire to move towards the use of non-chemical fertilisers, as well as a demand for parity in prices and subsidies for chemical fertilizers with organic and organic fertilisers. It also provides scope to utilize a large biomass of the crop which becomes waste and increases the value of livestock byproducts. We need to enhance and improve innovations to develop alternative fertilizers. Although compost has a low nitrogen content, technologies are now available to enrich it.

Lastly, India should focus on improving fertilizer efficiency through need-based use rather than field dissemination of fertilizers. The recently developed nano urea by IFFCO shows promising results in reducing the use of urea. Such products need to be promoted fast after testing.

These changes will go a long way in increasing the productivity of agriculture, mitigating climate change, providing an alternative to chemical fertilizers and balancing the financial impact of fertilizer subsidies on the Union Budget in the coming years.

Ramesh Chand is a member and Yogesh Suri is a senior advisor to NITI Aayog. thoughts are personal