Routing the subsidy through manufacturers and keeping the selling price of fertilisers artificially low, makes diversion of subsidised fertilisers profitable for dubious players The availability of fertilisers at an ‘artificially’ low price is very tempting to all stakeholders in the supply chain. (File image) About 41 percent of fertiliser subsidy is diverted to non-agricultural uses including smuggling to neighbouring countries, 24 percent is consumed by larger farmers and another 24 percent is spent on inefficient producers, the Economic Survey 2015-16 noted. That essentially means that just about 11 percent of the subsidy goes to small and medium farmers. The Union government subsidises fertiliser sales to keep input costs low for farmers. Diversion to purposes other than farming is a misuse...
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Category: Fertilizers
Fertiliser Subsidy: Scrap pricing scheme and decontrol urea
Bureaucrats are micro-managing the operations of urea plants through the New Pricing Scheme. This is the surest way to scuttle any initiative to cut costs and improve efficiency The genesis of NPS lies in the Union government asking manufacturers to sell urea to farmers at a low ‘uniform’ price. (Representative Image) In the context of the debate over increasing fertiliser subsidy, a major issue that often escapes public attention is the New Pricing Scheme (NPS) for urea. The genesis of NPS lies in the Union government asking manufacturers to sell urea to farmers at a low ‘uniform’ price unrelated to the cost of production and distribution, which is higher, and its promise to reimburse them the differential amount as a subsidy....
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Levy 5% GST on natural gas to reduce fertiliser subsidy
Bringing natural gas under GST can end the extant differential taxation regime/varying urea cost and subsidy payments across states. It will eliminate the cascading effect of tax on tax Fertilisers attract GST at the rate of 5 percent. This together with low MRP results in a scenario where output tax liability is insufficient to offset taxes paid on inputs such as natural gas. Finance minister Nirmala Sitharaman has said that the tax rate for five petroleum goods – crude oil, natural gas, petrol, diesel and aviation turbine fuel (ATF) – can be fixed under the Goods and Services Tax (GST) as soon as the states give their consent at a GST Council meeting. GST is a ‘single tax’ applied all...
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Budget 2023 needs to play the hard ball on fertiliser subsidy
In a business-as-usual scenario, there won’t be any respite from a high fertiliser subsidy. Things could change if the Modi government plays the hard ball in Budget 2023 by going for measures such as urea decontrol and direct benefit transfer (DBT) or a significant increase in maximum retail price Fertiliser subsidy is payments made to manufacturers or importers to cover the excess of the cost of production/import and distribution. Propelled by the need to return to a fiscal consolidation path, the Union government is keen to rein in major subsidies. It wants to slash fertiliser subsidies from the likely actual of around Rs 2.50 lakh crore during the current fiscal year (FY) to Rs 1.40-1.50 lakh crore during FY2024. Going...
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DBT is the way forward for balanced fertiliser use
The flawed subsidy and pricing policy followed by governments for years has led to excessive use of urea and a deterioration in soil health The subsidy is given directly to the farmers even as the manufacturers charge consumers a price that fully covers the cost of supply. For over a decade, Indian agriculture has been grappling with an imbalance in fertiliser use involving excessive use of nitrogen or ‘N’ vis-à-vis phosphate or ‘P’ and potash or ‘K’ even as the present NPK use ratio at 6.7:2.4:1 (against the desired 4:2:1) is tilted in favour of ‘N’. This, in turn, has led to a decline in crop yield, deterioration in soil health and adverse impact on the environment. The imbalance has...
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Fertiliser subsidy: Shortcuts won’t work
The initiatives taken by the Government are unlikely to bring down the quantum of fertiliser subsidy Propelled by the need to return to fiscal consolidation path and targeting fiscal deficit as a proportion of GDP at 5.9 per cent for financial year (FY) 2023-24 (against 6.4 per cent for FY 2022-23), the Union government is keen to rein in major subsidies. It wants to slash fertilizer subsidies from the likely actual of around Rs 250,000 crore during the current FY to Rs 140,000–150,000 crore during 2023-24. Does it have measures to deliver? Is it merely banking on a drop in international fertiliser prices? Fertilizer subsidy is payments made to manufacturers or importers to cover the excess of the cost of...
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Baby steps will not help rein in fertiliser subsidies
The government should pursue major reforms which can force suppliers to cut costs, stop leakages, and farmers to improve fertiliser efficiency Faced with a steep rise in international fertiliser prices caused by the Ukraine war, the Modi government has implemented two cost-cutting policies: (i) the “One Nation, One Fertilizer” (ON, OF) scheme, under which all fertiliser companies will sell all subsidised fertilisers under a single brand “Bharat”; and (ii) hiring an aggregator like GAIL India Limited to procure the fuel on their behalf or buying from gas exchanges and incentivizing companies The Centre controls the maximum retail price (MRP) of urea at a low level unrelated to the cost of production, which is higher. The excess of cost over the MRP...
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Fertiliser subsidy must go to farmers directly
This is the only way to eliminate diversion, prevent excess use, promote competition, and lower cost The Centre is planning to conduct pilots in a few districts of the country on a modified version of direct benefit transfer (DBT) in fertilisers that would establish some connection between land holding and the nutrient’s consumption. The intent is to monitor consumption, prevent excess usage and chances of misuse. DBT, as the wording implies, has to do with transfer of fertiliser subsidy. Fertiliser subsidy arises because the Centre directs manufacturers/importers to sell fertilisers 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...
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Nano urea and some tall claims
Can nano urea help in achieving the stated objective? Can it help to make a dent in the subsidy? The government spends huge sums on fertiliser subsidy — the likely expenditure during the current financial year being about Rs 2,50,000 crore. Credit: AFP Photo Launching an ambitious programme for the promotion of liquid nano fertilisers at the two-day ‘Kisan Samman Sammelan’ at the Indian Agricultural Research Institute (IARI) on October 17, Prime Minister Narendra Modi exuded confidence that it would help attain self-sufficiency in the crucial sector and help farmers enhance their income while substantially reducing the impact on the environment. Already, the Indian Farmers Fertiliser Cooperative Limited (IFFCO) — a major fertiliser manufacturer — is producing indigenously-developed nano urea at its Nano Biotechnology Research...
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Nano fertiliser move can be a game changer
Nano fertilisers not just promise to cut down subsidy burden but also improve the income of farmers Inaugurating function of the two-day “Kisan Samman Sammelan” at the Indian Agricultural Research Institute (IARI) on October 17, Prime Minister Narendra Modi announced two major policy initiatives — “One Nation, One Fertiliser” scheme under which all fertiliser manufacturing and market companies will sell all subsidized fertilisers under a single brand Bharat; and promote use of liquid nano fertilisers. While the government intends to use “One Nation, One Fertiliser” scheme to reduce the criss-cross movement of fertilizers that will eventually help reduce freight subsidy bills and make quality fertilizer available at lower cost, adoption of liquid nano urea is meant to help attain self-sufficiency...
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