Fertilizer Subsidy in India

Context

Decision was taken to increase the subsidy for DAP fertiliser from Rs. 500 per bag to Rs. 1200 per bag, which is an increase of 140%.

Increase in subsidies

• The price of fertilizers is undergoing an increase due to the rising prices of phosphoric acid, ammonia etc internationally.
• Despite this rise, it has been decided to continue selling it at the older price of Rs.1200 and the central government will bear all the burden of price hike.

Fertilizer Subsidy in India

• Subsidy as a concept originated during the Green Revolution of the 1970s-80s.
• Fertiliser subsidy is purchasing by the farmer at a price below MRP (Maximum Retail Price), that is, below the usual demand-and-supply-rate, or regular production and import cost.
• Fertiliser subsidy ultimately goes to the fertiliser company, even though it is the farmer that benefits.
• Before 2018, companies were reimbursed after the material was dispatched and received by the district railhead or designated godown.
• 2018 saw the beginning of DBT (Direct Benefit Transfer), which would transfer money directly to the retailer’s account.
• However, the companies will be paid only after the actual sale to the farmer.

Payment of subsidy

• The subsidy goes to fertiliser companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market-determined rates.
• Companies, until recently, were paid after their bagged material had been dispatched and received at a district’s railhead point or approved godown.
• From March 2018, a new so-called direct benefit transfer (DBT) system was introduced, wherein subsidy payment to the companies would happen only after actual sales to farmers by retailers.
• With the DBT system, each retailer — there is over 2.3 lakh of them across India — now has a point-of-sale (PoS) machine linked to the Department of Fertilizers’ e-Urvarak DBT portal.

Non-urea fertilizers

• The non-urea fertiliser is decontrolled or fixed by the companies.
• However, the government pays a flat per tonne subsidy to maintain the nutrition content of the soil, and ensure other fertilizers are economical to use.
• The non- urea fertilizers are further divided into two parts, DAP (Diammonium Phosphate) and MOP (Muriate of Phosphate).

Issues with such subsidies

• A flawed subsidy policy is harmful not just for the farmer, but to the environment as well.
• Indian soil has low Nitrogen use efficiency, which is the main constituent of Urea. Consequently, excess usage contaminates groundwater.
• The bulk of urea applied to the soil is lost as NH3 (Ammonia) and Nitrogen Oxides. The WHO has prescribed limits been breached by Punjab, Haryana and Rajasthan.
• For human beings, “blue baby syndrome” is a common side ailment caused by Nitrate contaminated water.
• This hampers the ability of the body to carry Nitrogen, with a high probability of death.