Fertilizer Policy in India - Constitutional Provisions, Challenges, Important Terms & More

The Fertilizer Policy in India plays a significant role in the Indian Economy. Since the inception of the New Economic Policy in 1991, many attempts have been made to reform the fertilizer sector in India. The issue of agricultural subsidies in India should be viewed in the context of the country’s overall economic condition, the importance of farmers and the agricultural industry to the country’s political economy, and current trends in the country’s agricultural economy.

Fertilizer Policy in India is one of the important topics for the UPSC IAS exam. It covers a significant part of the UPSC Mains General Studies Paper 3 Syllabus and General Studies 2 Paper.

Recent Update

A new DAP Subsidy has been approved by the government of India for the year 2022 (Kharif season). The price of DAP has increased from Rs 1,200 a bag to almost Rs 1,350 per 50 kg bag, which denotes an increase of 12.5 per cent.

Fertilizer Policy in India

India is the second biggest consumer of fertilizer in the world, next only to China. The fertilizer industry is essential to the Indian Economy because agriculture is a crucial sector. India’s fertilizer business is extremely important since it produces some of the most important raw ingredients for agricultural production.

• The main goal of fertilizer sector is to guarantee the entry of primary and secondary elements in the quantities required for agricultural production.
• In India, the fertilizer business is largely responsible for the agricultural sector’s success. India’s food business has become a global leader in this sector largely due to the number of technically skilled fertilizer manufacturers there.
• During the projected period, the Indian fertilizers market is anticipated to increase at a compound yearly growth rate of 11.9 percent (2021-2026).
• In 2020, the Indian fertilizer market had a worth of INR 887 billion. The rise has significantly aided the country’s sustainable production of food grains in fertilizer consumption.
• Numerous world-class government and private fertilizer firms are based in India. The numerous fertilizer firms in India, which produce everything from seeds to fungicides, are the main factor in the sector’s development in India.

City Compost Policy

City Compost Policy involves the process and uses city waste as compost. This policy was approved in 2016. Under the policy, the assistance of Rs 1,500 per tonne of city compost was to be provided to fertilizer companies for marketing and promotion of city compost. The Ministry of Chemicals and Fertilizers introduced it. In 2021 the policy on the promotion of city compost was discontinued.

Phosphatic and Potassic (P&K) Policy

A nutrient Based Subsidy Scheme was announced in 2009 for Phosphatic & Potassic fertilizers to ensure the Nation’s food security, improve agricultural productivity, and ensure the balanced application of fertilizers. According to the NBS Policy, the government annually announces a fixed rate of subsidy (in Rs per Kg) for the nutrients nitrogen (N), phosphate (P), potassium (K), and Asulphur (S). basis. The per Kg subsidy rates on the nutrients N, P, K, and S are converted into per Tonne subsidy on the various P&K fertilizers covered under NBS Policy.

Urea Policy (Pricing and Administration)

Under urea policy, there are 32 urea units in the country, of which 31 urea units use Natural Gas (domestic gas/LNG/CBM), and the remaining urea unit uses Gas & Naphtha as feedstock.

Fertilizer Subsidy in India

The subsidy offered to farmers for using fertilizers is known as a fertilizer subsidy. Farmers purchase fertilizers at MRPs (Maximum Retail Prices), less expensive than the market rates determined by supply and demand or the cost of production or importation. The farmer, who pays MRPs less than the market-determined rates, is the true subsidy recipient, even though fertilizer businesses receive it. Until recently, businesses earned payment only after their bagged goods were sent and retrieved at a district’s railhead point or authorized godown.

Direct Benefit Transfer

• A new Direct Benefit Transfer (DBT) system, which went into effect in March 2018, requires that corporations only receive subsidies after making actual sales to farmers.
• Over 2.3 lakh retailers operate in India, each with a Point of Sale (PoS) system connected to the Department of Fertilizers’ e-Urvarak DBT portal.
• Anyone purchasing fertilizers on a subsidized basis must provide their Kisan Credit Card number or unique Aadhaar identity.
• The PoS device must record the quantities of the fertilizers purchased, the buyer’s identity, and biometric authentication.
• A company can only apply for a subsidy after registering the sale on the e-Urvarak platform; payments are processed weekly and sent electronically to the company’s bank account.

Recent Fertilizer Policy in India

The fertilizer Policy in India is significant for Indian culture, and since India’s independence, the government has regulated fertilizer sales, prices, and quality. The Indian government has introduced several Fertilizer Policies to regulate the sector.

New Pricing Scheme

The Concession Scheme for urea units in India is based on the feedstock prices and the plants' age. This scheme has been implemented in various phases, such as NPS-I (2003-2004), NPS-II (2004-2006), and NPS-III (2006 onwards). Under this scheme, the difference between the cost of production and the selling price or Maximum Retail Price (MRP) is provided as a subsidy or concession to the manufacturers. Urea is the only fertilizer subject to price control, and it is sold at a specified uniform sale price determined by the government. On the other hand, Phosphatic and Potassic fertilizers are not subject to price control and are sold at indicative maximum retail prices (MRPs).

Objective

The objective is to assist urea units in attaining internationally competitive efficiency levels. This entails promoting transparency and simplifying the administration of subsidies.

Effects

The policy of fixed urea prices in India resulted in market distortions. Fertilizer companies faced financial difficulties due to the fixed prices, while the costs of inputs like natural gas and naptha continued to rise. Since a significant portion (80%) of urea production in India relies on gas-based methods, this further exacerbated the issue. Another consequence of this policy was an imbalance in the utilization of fertilizers. Some sectors may have misused the availability of subsidized urea, leading to illegal exports and the improper use of urea in activities like the preparation of adulterated milk.

Also, check out the article on Important Government Schemes in detail here!

Nutrient Based Subsidy (NBS) Policy, 2010

• Nutrient Based Subsidy (NBS) Programme for Fertilizers was initiated by the Ministry of Chemicals & Fertilizers’ Department of Fertilizers in April 2010.
• With the exception of urea, each grade of subsidized phosphoric and potassium (P&K) fertilizers receives a fixed level of subsidy under NBS based on the number of nutrients they contain.
• It is primarily done for secondary nutrients like N, P, K, and S, which are crucial for crop growth and development.
• Since the retail pricing of these non-urea fertilizers is deregulated and set by manufacturers, it attempts to ensure they are accessible to farmers at a reasonable cost.

Neem Coated Urea Policy, 2015

Domestic fertilizer companies are legally required to “Neem coat” at least 75% of their urea production, which can even go up to 100 percent. There used to be a 35 percent cap on this. Additionally, the government has permitted businesses to increase the price of urea coated with neem by just 5%.

Objective

The objective is to ensure sustainable agriculture, preserve soil health, and optimize crop yields while reducing reliance on imported urea and minimizing environmental impact.

Advantages

Reduction in the subsidy. As a result, rationalizing the subsidy burden on the Government of India. Prevention of diversion of urea for industrial use

Limitations

The amount of subsidy savings resulting from these efforts is relatively small compared to the significant financial and political magnitude of the fertilizer subsidy paid on the three major fertilizers - nitrogen (N), phosphorus (P), and potassium (K).

Gas Pooling Policy, 2015

The ‘Gas price pooling’ mechanism was introduced on 1 July 2015 in place in India. This policy creates a standard rate for fertilizer plants by averaging or pooling the costs of domestic and imported LNG. Natural gas is the same price for all fertilizer factories across the nation as the raw material used to create urea. By setting gas prices at the same level for all participants, the Gas Price Pooling aims to alter the dynamics of the urea industry. In the past, every plant had to develop its agreements or contracts on unique costs with various suppliers.

New Urea Policy, 2015

The New Urea Policy was introduced in May 2015. The Policy aims to boost domestic urea output, encourage urea production that uses less energy, and lighten the central government’s subsidy load. The purpose of this policy is to encourage domestic producers and provide free shipping of phosphorus and potassium fertilizers.

Role of Fertilizer Association of India (FAI)

The Fertiliser Association of India (FAI) is a non-profit and non-trading company that represents majorly the fertilizer manufacturers, distributors, importers, and equipment. Fertilizer Association of India was established in 1955 to bring together everyone involved in fertilizer manufacturing, marketing, and consumption with the goal of :

• Assisting the industry in improving its operative efficiency
•  Finding solutions to the problems facing the fertilizer industry and agriculture
• Encourage the wise and effective use of fertiliser.
• Promote the consumption of more nutritious plant foods.
• Encourage research and conversation about all issues that affect good agriculture practices.
• Ensuring Food Security through the balanced and efficient use of plant nutrients is the prime objective of the Association.

Study in detail about Micro Finance in India (MFI) here!

Constitutional Provisions on Fertilizer Policy

The fertilizer industry in India falls under the purview of the Union Government as it is listed in the First Schedule of the Industries (Development and Regulation) Act, 1951, specifically under Entry 52 of List I and 33 of List III. Within the sector, urea holds a dominant position, being the most produced (86%), consumed (74%), and imported (52%) type of fertilizer. India can domestically produce approximately 80% of its urea fertilizer requirement. Additionally, the indigenous capacity of the fertilizer industry enables the production of 50% of the country's phosphatic fertilizers. However, India heavily relies on imports to fulfill its phosphatic and potassium fertilizer needs for the raw materials involved.

Trends in Growth of Fertilizer Industry in India

• According to the Indian Economic Survey 2021–2022, the country's agriculture industry's gross value added (GVA) increased over the preceding two years. In 2021–2022 and 2020–2021, it expanded by 3.6 and 3.9 percent, respectively.
• The Food and Agriculture Organization reports that countrywide production climbed despite a decline in the area under cultivation. Between 2019 and 2020, rice output climbed from 177.6 million tonnes to 178.3 million tonnes, while wheat production increased from 103.5 million tonnes to 107.5 million tonnes.
• The Indian fertilizer market expanded by 22.6 percent over the course of the last five years, from 2016 to 2021. Still, domestic fertilizer production in India only grew by a negligible 3.78 percent, increasing the country’s dependence on imports, which increased by 48.22 percent in the fiscal year 2020–21 from 2016–17.

Source: FertilizerIndia

Challenges in the Indian Fertilizer Industry

• Outdated Technology: Most of the fertilizer sector is run by PSUs that employ technology that is more than ten years old, resulting in significant losses in both profits and competitive advantage.
• Government Schemes & Policies: In the past, the government provided subsidies to farmers to make fertilizers available to them at a low cost and to prevent the cost of producing food crops from rising. However, today, governments are increasingly governed by international institutions, such as the India and WTO agreement, which requires reduced subsidies. This is detrimental to the expansion of this sector.
• Inadequate Irrigation: The industry's growth is constrained by the lessening expansion of irrigation systems and the resulting low fertilizer use.
• Low demand is another factor impeding the development of the industrial sector, along with less construction of irrigation facilities.
• The availability and varying costs of the raw materials needed to create fertilizers provide the Indian fertilizers sector with some significant hurdles.
• The supply and demand variables are primarily to blame for changes in fertilizer prices.
• India is also at a disadvantage since it needs more natural resources to make fertilizers.
• There isn’t enough natural gas in the nation to produce enough urea. Sometimes, a rise in oil prices on the world market has a negative effect on the fertilizer business.

Reforming the Fertilizer Sector

• The fertilizer Policy in India places an important role in the agricultural sector. Certain measures are required to keep the rising fertilizer subsidy bill under control.
• Encourage the effective application of fertilizers, achieve balanced usage of potassium, phosphorus, and nitrogen, and Reduce the contamination of water and air that urea and other fertilizers produce.
• We must simultaneously focus on important policy areas to address the numerous objectives of fertilizer policy.
• We must be independent and not rely on the importation of fertilizers. We can avoid the demands of high price fluctuations globally in this way. Five urea factories in the public sector are being resurrected in this way at Gorakhpur, Sindri, Barauni, Talcher, and Ramagundam.
• Rationalization of Fertilizer Subsidies as price subsidies constitute an important part of policies and programs initiated by the government of India.
• The Nutrient Based Subsidy (NBS) model needs to be expanded to include urea to rationalize its price compared to non-nitrogenous fertilizers and crop costs.
• Creation of substitute fertilizers for plants, such as organic and biofertilizers. Additionally, this gives room to increase the value of livestock byproducts and employ enormous amounts of crop biomass that would otherwise go to waste.
• India should focus on increasing fertilizer efficiency through need-based use.

Also, check out the article on Farming in India here!

List of Important Terms for UPSC

Concluding Remarks

The growing population and demand for food security improve the possibilities for the fertilizer industry’s increased growth. The consumption pattern of food and the desire for food grain types with better qualities have increased the contribution of fertilizers to their production. The fertilizer Policy in India has become more popular among farmers as a result of rising levels of education, literacy, and access to digital communication tools. This has increased demand for fertilizer in regions where it has not previously been a widespread practice.

Fertilizer Policy in India: Important Facts & Recent Fertilizer Policies UPSC Notes: Download PDF here!

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