Why fertiliser is needed?

• Fertilizer is defined as any organic or inorganic substance, natural or artificial supplying one or more of the chemical elements/nutrients required for plant growth. They provide six macronutrients and eight micronutrients to the plants for well-balanced growth.

Nutrients

• Primary (Macro) Nutrients
• Nitrogen (N), Phosphorus (P), and Potassium (K), Calcium (Ca), Magnesium (Mg), Sulphur (S)

Secondary (Micro) Nutrients

• Boron (B), Chlorine (Cl), Copper (Cu), Iron (Fe), Zinc (Zn), etc

Types

• Nitrogenous: Essential Component Is Nitrogen (N). Ex Urea, Ammonium Nitrate, Ammonium Sulphate
• Potassic: Ex Potassium Nitrate, Chile Saltpetre
• Phosphatic: Ex-Super Phosphate, Triple Phosphate
• Indian soils are generally deficient in nitrogen, phosphorus, and potassium and do not give high yields.
• Hence, the need for fertilizers. Green Revolution (Use of chemical fertilizers was one component) has made a significant impact on Indian agriculture. Thus, India was able to achieve self-sufficiency in food production.
• Fertilizer Manufacturing Companies (PSUs): National Fertilizers Limited, Rashtriya Chemicals & Fertilizers Limited, etc
• Fertilizer Manufacturing Co-operatives: IFFCO, KRIBHCO, etc
• Position in the World: 3rd in terms of production and 2nd in terms of consumption
• Decision-Making Body: Department of Fertilizers, Ministry of Chemicals & Fertilizers, Govt of India

Fertilizer Policy in India and Governmental Interventions

• Objectives: Major focus of the fertilizer policy has been on primary (macro) nutrients.
• Since independence, the Government of India (GoI) has been regulating the sale, price, and quality of fertilizers. GoI has declared fertilizers as an essential commodity.
• GoI issued the Fertilizer Control Order (FCO) under the Essential Commodities Act, 1957.No subsidy was paid on Fertilizers till 1977 except Potash for which subsidy was paid only for a year in 1977.
• Retention Pricing Scheme (RPS): Introduced for nitrogenous fertilizers in 1977. Later, it was extended to phosphatic and potassic fertilizers (Including Imported fertilizers).
• In this, the difference between retention price (cost of production as assessed by the government plus 12% post-tax return on net worth) and the statutorily notified sale price was paid as a subsidy to each manufacturing unit. This was the beginning of the “Product-based subsidy” regime.

When Nutrient based policy was introduced?

• The policy was introduced in 2010. The government fixes subsidy on an annual basis based on the weight of the different macro/micronutrient (N, P, K, S, etc) contained in the fertilizer
• Manufacturers/Marketers are allowed to fix the Maximum Retail Price (MRP) at a reasonable level.

Aim- It aims at ensuring the balanced use of fertilizers, improving agricultural productivity, promoting the growth of the indigenous fertilizers industry and also reducing the burden of Subsidies.

• Urea is not covered under the scheme
• Delay in NBS subsidy payments. Hence, Fertilizer companies focus more on Urea than other fertilizers
• Increase in prices of Phosphoric and Potassic fertilizers
• Farmers overuse Urea. Hence, the ideal ratio of NPK is disrupted

Nutrient Based Subsidy Scheme (NBS) Provisions

• In India, urea is the only controlled fertilizer and is sold at a statutory notified uniform sale price.
• Nutrient Based Subsidy Scheme (NBS) allows the manufacturers, marketers, and importers to fix the MRP of the Phosphatic and Potassic (P&K) fertilizers at reasonable levels.
• The domestic and international cost of P&K fertilisers is considered along with the country’s inventory levels and the currency exchange rate in order to decide the MRP.

Aims of the Nutrient Based Subsidy Scheme

• The aim of the NBS scheme are the following: The scheme aims at ensuring that a sufficient quantity of P&K is at the farmer’s disposal at statutory controlled prices so that agricultural growth can be sustained and balanced nutrient application to the soil can be ensured.
• It aims at ensuring the balanced use of fertilizers, improving agricultural productivity, promoting the growth of the indigenous fertilizer industry, and also reducing the burden of subsidy.
• Nutrient Based Subsidy Scheme has been implemented with the expectation that it will promote balanced fertilization of the soil, which will lead to increased agricultural productivity and consequently better returns to the farmers.

 Urea & Nutrient Based Subsidy Scheme

• It is a white crystalline solid that contains 46 percent of nitrogen as an animal feed additive and fertilizer. It has various uses:
• It is used in cropping.
• It is also used as a cattle feed supplement.
• It is useful for various industries, including industries involved in the production of plastics.
• As per the latest news, the Indian Government is expected to include urea under the NBS before rolling out the Direct Cash Transfer (DCT) of urea subsidy in farmers’ accounts. Soil health and size of landholdings will be considered to fix the subsidy rate of urea.
• In 2012, a Sharad Pawar Committee recommended to include urea under NBS.
• At present, the prices of Urea are controlled by the Government, which fixes the MRP.
• Urea Subsidy – As per the government definition, “The difference between the delivered cost of fertilizers at farm gate and net market realization by the urea units is given as subsidy to the urea manufacturer/importer by the Government of India.”
• Urea is covered under the New Pricing Scheme.

• There has been a surge in demand in regions like Europe, America, Brazil and Southeast Asia.
• While the demand has increased, the supply side has faced constraints.
• There has been a steady increase in prices of raw material as well as logistics and freight costs.           
• The disruption in the logistics chain during COVID has caused the average freight rates for ships to jump up to four times.
• Besides, prices of fertilisers such as DAP and urea, and raw materials such as ammonia and phosphatic acid, have risen up to 250–300%.
• The total fertiliser subsidy bill is expected to reach Rs 2.5 lakh crore this financial year, up from Rs 1.62 crore in the revised estimates for the previous fiscal.

• Theoretically, the opening stock and the expected domestic production would be sufficient to meet the requirement.
• However, the war in Ukraine has disrupted the supply of raw materials that Indian companies import, which is expected to impact domestic production.
• In efforts at price control, the government has increased the Nutrients Based Subsidy (NBS) rates for Kharif 2022.
• The NBS rates have been raised for nitrogen (N) by 389%.
• For potash (K) by 150%
• For sulphur by 192%
• India has received shipments of 3.60 LMT of fertilisers from Russia since the beginning of the war.
• India has entered into a C2C (corporation to corporation) supply arrangement with Russian companies.
• India has made efforts to secure fertiliser supply from alternative sources such as Saudi Arabia and Iran.
• India has also clinched a long-term supply deal with Oman to get urea.
• For domestic production of urea, the government is focusing on the Matix (West Bengal), Ramagundam (Telangana) and Gorakhpur (UP) plants, and is reviving two other units, at Sindri and Barauni.
• The government is exploring the option of domestically mining raw materials such as rock phosphate.
• The Centre has asked the states to ensure micro-planning of fertiliser movement as per requirement.
• It has asked them to ensure timely unloading of rakes for better utilisation of the rolling stock, to promote the use of alternative fertilisers such as nano urea, and to take strict action against diversion, hoarding and black marketing of fertilisers.

Determination of fertiliser requirement in India

• Every year, before the start of the cropping season, the Department of Agriculture and Farmers Welfare assesses the requirement of fertilisers.
• It then informs the Ministry of Chemical and Fertilizers to ensure the supply.
• The requirement varies each month according to demand, which is based on the time of crop sowing, which again varies from region to region.
• The government uses the two months (March and April) to ensure the supply of fertilisers for the kharif season.
• As per data, the opening stock of fertiliser available for the kharif season is 125.5 LMT, or 35% of the requirement.
• Domestic production- Theoretically, the opening stock and the expected domestic production would be sufficient to meet the requirement.
• However, the war in Ukraine has disrupted the supply of raw materials that Indian companies import, which is expected to impact domestic production.

Who gets the subsidy of Fertiliser?

• The subsidy goes to fertiliser companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market-determined rates.
• Under the Direct-Benefit Transfer (DBT) system, subsidy payment to the companies would happen only after actual sales to farmers by retailers.
• Each retailer now has a point-of-sale (PoS) machine linked to the Department of Fertilisers’ e-Urvarak DBT portal.
• Anybody buying subsidised fertilisers is required to furnish his/her Aadhaar unique identity or Kisan Credit Card number.
• Only upon the sale getting registered on the e-Urvarak platform can a company claim subsidy.

Fertiliser subsidy

• Farmers buy fertilisers at MRPs (maximum retail price) below their normal supply-and-demand-based market rates or what it costs to produce/import them.
• The MRPs of non-urea fertilisers are decontrolled (fixed by the companies). However, the Centre pays a flat per-tonne subsidy on these nutrients to ensure reasonable prices.
• The MRP of neem-coated urea, for instance, is fixed by the government at Rs 5,922.22 per tonne, whereas its average cost-plus price payable to domestic manufacturers and importers comes to around Rs 17,000 -Rs 23,000 per tonne, respectively.
• The difference, which varies according to plant-wise production cost and import price, is footed by the Centre as subsidy.

• Increased Nutrients Based Subsidy (NBS) : In efforts at price control, the government has increased the NBS rates (given to non-urea fertilisers) for kharif season 2022 based on average international prices of fertilzers. The total fertiliser subsidy bill is expected to reach to Rs 2.5 lakh crore this financial year, up from Rs 1.62 crore in the revised estimates for the previous fiscal (FY22).
• Reinstitute units: The government is focusing on boosting domestic production of urea by reviving domestic urea plants e.g. Matix (West Bengal), Ramagundam (Telangana) and Gorakhpur (UP), Sindri (Jharkhand) and Barauni (Bihar).
• Domestic mining: The government is exploring the option of domestically mining raw materials such as rock phosphate to manufacture fertilizers.
• Alternatives: Government is considering to promote use of single super phosphate (SSP) which contains less phosphoric acid (an intermediate used to manufacture phosphatic fertilisers) compared to hiked di-ammonium phosphate (DAP).
• Micro-planning: The Centre has asked the states to ensure “micro-planning” of fertiliser movement as per requirement.
• For example, timely unloading of rakes for better utilisation of the rolling stock, to promote use of alternative fertilisers such as nano urea, and to take “strict” action against diversion, hoarding and black marketing of fertilisers.
• Capping: Limiting the total number of subsidised fertiliser bags that any person can buy during an entire kharif or rabi cropping season would end retail-level diversion and ensure smooth fertilizer supply.
• Negotiations: India has entered into a C2C (corporation to corporation) supply arrangement with Russian companies for 2.5 LMT DAP/NPK every year for 3 years.
• New locations : India is exploring alternative sources such as Saudi Arabia(DAP/NPK), Iran (urea) and oman(urea) to procure fertilisers.
• New raw material sources : With supply of potash from Belarus affected, India has now secured supply of 12 LMT of potash from Canada, Israel and Jordan.

• China’s cutting supplies: Major fertiliser exporters such as China have gradually reduced their exports in view of a dip in production due to Covid-19 pandemic. This has impacted countries such as India, which sources 40–45% of its phosphatic imports from China.
• Demand surge: There has been a surge in demand in regions like Europe, America, Brazil and Southeast Asia etc while the supply side has faced constraints.
• Increased costs: There has been a steady increase in prices of raw material as well as logistics and freight costs in recent months. For instance Covid-19 has caused the average freight rates for ships to jump up to four times.
• Raw material : India imports potash to manufacture fertlisers. But a sanction on Belarus and Russia has led to soaring international prices of potash from $445 per metric tonnes to $600 per MT in 6 months (Dec 2021-April 2022). Besides, prices of fertilisers such as DAP and urea, and raw materials such as ammonia and phosphatic acid, have risen up to 250–300%.

How much fertilizer does India consume?

• About: India consumed about 500 LMT of fertilizer per year in the last 10 years.
• The Centre's fertiliser subsidy bill is set to soar by 62% over the budgeted amount to Rs 1.3 lakh crore in FY21.
• Since non-urea (MoP, DAP, complex) varieties cost higher, many farmers prefer to use more urea than actually needed.
• The government has taken a number of measures to reduce urea consumption.
• It introduced neem-coated urea to reduce illegal diversion of urea for non-agricultural uses. It also stepped up the promotion of organic and zero-budget farming.
• Between 2018-19 and 2020-21, India’s fertiliser imports increased almost 8% to 20.33 million tonnes from 18.84 million tonnes.
• In FY21, more than a fourth of the urea requirement was imported.
• India, the top importer of urea, is a major buyer of Diammonium Phosphate (DAP) needed to feed its huge agriculture sector which employs about 60% of the country’s workforce and accounts for 15% of USD2.7 trillion economy.

Need of Large Quantities of Fertilisers:

• The agricultural output of India has increased every year, and the country's need for fertilisers has also increased.
• Despite imports, gaps remain between requirements and availability after indigenous production targets haven't been met.