Published: 15th Jun, 2023
Context
The Commission for Agricultural Costs and Prices (CACP) in its report named “Price Policy for Kharif crops, The Marketing Season 2023-24”, has recommended the Centre to bring urea under the nutrient-based subsidy (NBS) regime to address the problem of imbalanced use of nutrients.
What is nutrient-based subsidy (NBS)?
- Under the NBS Policy, a fixed rate of subsidy (Rs./Kg) is announced on nutrients - ‘N’, ‘P’, ‘K’ and ‘S’ by the Government on annual basis.
- The market price of subsidized fertilizers, except Urea, is left open to manufacturers /marketers and determined through demand-supply dynamics, but any sale above the printed MRP is punishable.
- The distribution and movement of fertilizers is monitored online through web based “Fertilizer Monitoring System (FMS)”.
- The NBS is passed on to the farmers through the fertilizer industry.
- The payment of NBS to the manufacturers/importers is done by the government.
About the recommendations by CACP:
- The commission recommended that steps should be taken to bring urea under NBS regime to address the problem of imbalanced use of nutrients.
- The main cause of the nutrient imbalance is price distortions resulting from fertiliser subsidies, which have grown dramatically and continue to increase rapidly.
- Urea does not come under NBS, which includes non-urea fertilisers like phosphorous and potassium.
- Keeping urea out of NBS essentially means that the government has retained direct control over MRP of urea and its subsidy.
- It also recommended a cap on the number of subsidised bags of fertilisers per farmer, as has been done for subsidised LPG cylinders.
- The CACP said this would reduce the government’s subsidy burden, releasing resources to invest in agriculture research and development and infrastructure development.
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Role of Commission for Agricultural Costs and Prices (CACP):
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- Need of the initiative:
- Fertiliser response and efficiency has continuously declined over decades mainly due to imbalanced use of nutrients, deficiency of micro and secondary nutrients and depletion of soil organic carbon, while fertiliser subsidy.
Concerns associated:
- India is one of the largest producers and consumers of fertilisers in the world, and fertiliser consumption has increased significantly over the years.
- The MRPs of fertilisers other than Urea have been under indirect control by virtue of NBS policy.
- Manufacturers of these fertilisers have the freedom to fix MRP within “reasonable limits”, and a fixed per-tonne subsidy linked to their nutrient content is given.
- This has caused their MRPs to increase over the years, whereas urea’s price has remained unchanged.
- This has led to tilting of the usage of fertilisers in favour of urea because farmers have overused it, owing to its low pricing, thus resulting in deteriorating soil health.
Way forward:
- Rationalise fertiliser subsidy: There is need to revamp fertiliser delivery and take a fresh look at input subsidies in agriculture, so as to boost much-needed investment, and reorient the cropping pattern to resource efficiency.
- Consider import of urea: Given the uncompetitive local production of urea, and distortionary effects of subsidy policy, domestic production of urea can be discarded and instead it can be imported from regions where natural gas is abundant and thus costs of production is low (for example, Gulf nations or Russia).
- Direct cash transfer to farmers:Instead of subsidising fertilisers, direct cash transfers can be made to farmers. With fixed amounts, farmers will likely cut down their usage of fertilisers in the interest of soil health as prices of fertilisers will be decontrolled.
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