Why in the news?

  • The Union Cabinet decided to increase fertilizer subsidy for the ongoing rabi crop of this winter season

Fertilizer Subsidy in India

  • What is fertilizer?:
    • A fertilizer is a natural or artificial substance containing chemical elements (such as Nitrogen (N), Phosphorus (P), and Potassium (K)) that improve the growth and productiveness of plants.
    • There are 3 basic fertilizers in India – Urea, DAP, and Muriate of Potash (MOP).
  • What is fertilizer subsidy?:
    • A fertilizer subsidy is financial support provided by the government to the agricultural sector for the purchase of fertilizers. In India, agriculture is a vital sector employing a significant portion of the population.
    • The fertilizer subsidy in India has two components:
      • Urea subsidy –  Urea is the most widely used nitrogenous fertilizer in India, accounting for about 80% of the total consumption. Urea is sold at a statutorily notified uniform maximum retail price (MRP).
      • Nutrient Subsidy (NBS) scheme – The Nutrient Subsidy (NBS) scheme was introduced in 2010 to replace the earlier administered pricing system for decontrolled phosphatic and potassic (P&K) fertilizers. Under the NBS scheme, the government fixes a per kg subsidy rate for each nutrient, i.e., nitrogen (N), phosphorus (P), potash (K), and sulfur (S), based on their nutrient content, international and domestic prices, and exchange rate.
  • Features of fertilizer subsidy:
    • The fertilizer subsidy is one of the largest subsidies given by the central government, accounting for about 10% of its total expenditure on subsidies.
    • It is highly skewed towards urea, which accounts for about 70% of the total subsidy, while P&K fertilizers account for about 30%.
    • The government provides subsidies either directly to farmers or fertilizer manufacturers and also regulates both the distribution and pricing of fertilizers.
    • Subsidies play a crucial role in stabilizing fertilizer prices.
  • Significance of fertilizer subsidy:
    • The fertilizer subsidy has played a crucial role in enhancing food security and agricultural growth in India by increasing crop yields and reducing dependence on imports.
    • It has contributed to poverty reduction and rural development by improving farm incomes and the livelihoods of millions of farmers.
    • It has helped to maintain macroeconomic stability by reducing the fiscal deficit and current account deficit through lower imports and higher exports of agricultural commodities.
    • It has supported the domestic fertilizer industry by providing incentives for production, investment, and innovation.
  • Issues related to fertilizer subsidy:
    • Subsidizing fertilizers leads to overuse and leads to falling in soil quality in the long run.
    • Fertilizer subsidies are damaging the fiscal health of the economy.

Nutrient Based Subsidy Scheme

  • Aim: Aimed at providing subsidies to fertilizer manufacturers based on the nutrient content of the fertilizers they produce.
  • Features:
    • Subsidies Based on Nutrient Content: Encourages production and use of fertilizers with higher nutrient content (N, P, K, S) by linking subsidies to nutrient levels.
    • Price Control: Regulates the Maximum Retail Selling Price (MRSP) of fertilizers, ensuring affordability for farmers.
    • Promotion of Balanced Fertilization: Advocates for the appropriate application of nutrient combinations to enhance crop productivity and soil health.