The Government should stop routing subsidies through manufacturers and give these as direct benefit transfer Splurge in fertiliser subsidy in the last three years is giving jitters to policy makers, especially the Union finance ministry, which has to foot the bills. Fertiliser subsidy amounts to payments made to manufacturers or importers to cover the excess of the cost of production/import and distribution over a low maximum retail price (MRP, the price asked by the Union Government to charge from the farmers). These payments are under two broad categories viz. (i) urea, main source of nitrogen or ‘N’ supply; (ii) phosphate or ‘P’ and potash or ‘K’ fertilizers – commonly known as non-urea fertilizers – popular fertilizer in this category being...
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Category: Pricing policies & subsidies
Reining in fertilizer subsidy in India
From an already high of Rs 83,000 crore during 2019-20, the subsidy could cross Rs 200,000 crore during 2022-23. Fertilizer subsidy or payments made to manufacturers or importers to cover the excess of the cost of production/import and distribution over a low maximum retail price (MRP) – they are asked by the Union Government to charge from the farmers -has increased by leaps and bounds during the last three years. From an already high of Rs 83,000 crore during 2019-20, it increased to Rs 138,000 crore during 2020-21, Rs 162,000 crore during 2021-22 and could cross Rs 200,000 crore mark during 2022-23. Is there a way this escalating trend could be reined in? Subsidy payments are made under two broad...
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Reining in fertilizer subsidy
Fertilizer subsidy or payments made to manufacturers/importers to cover the excess of the cost of production/import and distribution over a low maximum retail price (MRP) – they are asked by the Union Government to charge from the farmers – has increased by leaps and bounds during the last three years. From an already high of Rs 83,000 crore during 2019-20, it increased to Rs 138,000 crore during 2020-21, Rs 162,000 crore during 2021-22 and could cross Rs 200,000 crore mark during 2022-23. Is there a way, this escalating trend could be reined in? Subsidy payments are made under two broad categories of fertilizers viz. (i) urea; (ii) phosphate or ‘P’ and potash or ‘K’ fertilizers – also branded as non-urea...
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Fertiliser subsidy: Political will missing
In the Union Budget for 2022-23, the Modi government has allocated Rs 1,05,000 crore for fertiliser subsidy, which is Rs 35,000 crore less than the revised estimate (RE) for 2021-22 at Rs 1,40,000 crore. Fertiliser subsidy arises because the Centre wants manufacturers/imports 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 manufacturers as a subsidy on a ‘unit-specific’ basis. In the case of phosphatic and potassic (P&K) fertilisers, it fixes ‘uniform’ subsidy on a per-nutrient basis for all manufacturers and importers. The three basic factors impacting subsidy are MRP, per unit cost of supply and the...
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Tackling fertilizer subsidy – political will missing
In the Union Budget for 2022-23 presented by the Finance Minister, Nirmala Sitharaman on February 1, 2022, Modi – government has allocated Rs 105,000 crore for fertilizer subsidy which is Rs 35,000 crore less than the actual expenditure of Rs 140,000 crore during the current year as per the revised estimate (RE). Fertilizer subsidy arises because the Union Government wants manufacturers/imports to sell fertilizers to farmers at a low maximum retail price (MRP), unrelated to the cost of production and import and distribution, which is much higher. In case of urea, it exercises mandatory control on MRP and reimburses the manufacturers for the excess of cost over it as subsidy on a ‘unit-specific’ basis under the new pricing scheme. In...
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Fertilizers – all is not well
Inaugurating the revival project – annual production capacity of 1.27 million ton (MT) neem coated urea – of the Hindustan Urvarak & Rasayan, a public sector joint venture of Coal India Ltd (CIL), NTPC, Indian Oil Corporation (IOC) and FCIL – at Gorakhpur (Uttar Pradesh) on December 7, 2021, Prime Minister, Narendra Modi made the following four observations:- (i) despite steep increase in international price of fertilizers during the current year, the Government has ensured that the farmers don’t have to pay more. (ii) 100 percent neem coating has helped in reining in diversion of urea to non-agricultural/industrial uses; (iii) Gorakhpur along with four other revival projects currently under implementation will add 6 million tons (MT) to existing annual urea...
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Policy flaws in fertiliser sector
The unprecedented increase in international prices of complex fertilizers primarily di-ammonium phosphate (DAP) as well as raw materials – phosphoric acid and ammonia used in their production – has sent shock waves through the industry. At the beginning of the year, when the prices were up 60 per cent to 70 per cent over last years’ level, the government was in deep slumber. Even as the cost of supplying a bag (50 kg) of DAP went up from Rs 1,700 last year to Rs 2,400, it kept the subsidy unchanged at the last years’ level of Rs 500. As a result, its maximum retail price (MRP) increased from Rs 1,200 to Rs 1,900 inviting farmers’ wrath. The Centre responded by...
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Fertiliser subsidy policy is skewing crop yields, soil health
A major factor fuelling resentment among farmers is the spiralling prices of fertilisers that are critical in the production of agricultural products. There are two types of fertilisers: Urea— the predominant source of nitrogen or ‘N’ nutrient supply— and phosphate and potash fertilisers— the source of ‘P’ nutrient and ‘K’ nutrient; there are 22 grades of such fertilisers and the most widely used are Di-Ammonium Phosphate (DAP) and Muriate of Potash (MOP). The Maximum Retail Price (MRP) of urea is controlled by the Centre at a low level and is unrelated to the cost of production and distribution which is higher (the excess amount is reimbursed to the manufacturers via the subsidy on a ‘unit-specific’ basis under the New Pricing...
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P&K fertilizers – subsidy conundrum
A major factor fueling resentment among farmers is the spiraling prices of fertilizers which are critical inputs used in the production of agricultural products. The maximum retail price (MRP) of urea – the predominant source of nitrogen or ‘N’ nutrient supply – is controlled by the Centre at a low level un-related to the cost of production and distribution which is higher (the excess amount is reimbursed to the manufacturers via the subsidy on a ‘unit-specific’ basis under the new pricing scheme or NPS in short). This price has remained unchanged (today’s price is the same as in 2002) even as all cost escalations are absorbed by increasing the subsidy. However, the worry is with regard to another category of...
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Making urea, that is not needed
The Cabinet Committee on Economic Affairs (CCEA) has recently approved subsidy for urea to be produced by Talcher Fertilizers (TFL) – a joint venture of 4 public sector undertakings (PSUs) viz. Coal India Limited (CIL), GAIL (India), Rashtriya Chemicals and Fertilizers (RCF) and Fertilizer Corporation of India (FCI). The TFL is setting up the urea plant with installed capacity of 1.27 million ton per annum at Talcher (Odisha) at an estimated investment of Rs 13,277 crore and is expected to be commissioned by September 2023. The project is based on use of coal gasification technology. According to the union commerce minister, Piyush Goal, the CCEA has given its approval for “a specific subsidy to promote this innovative technology for the...
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