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There has been a serious anomaly in the policy framework for fertiliser for the last five years. It was expected that this would be addressed in this year’s Budget, but that did not happen. The anomaly is that urea is under direct control. Its MRP is fixed by the government and subsidy is variable.
Its price has been extremely low for several years. Other fertilisers such as NP/NPK (phosphorus and potassium) have been under indirect control through the nutrient based subsidy (NBS) policy since April 2010.
Under the NBS policy, subsidy is fixed and manufacturers have the freedom to fix MRP within “reasonable limits”. Due to a cap on subsidy and the rising international market prices, MRP has gone up significantly in the last five years.
The extremely low price of urea and high prices of other fertilisers has led farmers to overuse urea. There is a serious imbalance in the use of fertilisers, leading to a decline in the response of yield to fertiliser use. This has been adversely affecting agricultural productivity.
The ratio malady The NPK ratio, which is a measure of balanced fertilisation, is highly adverse. At a macro level, the desirable NPK ratio is 4:2:1.
When the policy framework was almost the same for urea and other fertilisers, NPK ratio at the national level was 4:3:2:1, quite close to the desirable level. In 2013-14, it deteriorated to 8:2.7:1 and in Punjab and Haryana it was as bad as 38:6:1 and 53:11:1 respectively.
According to the Economic Survey 2013-14, “For each unit of K, 8.2 units of N are being put into the soil, instead of the 4 units required. The incremental output from the excessive 4.2 units of N is zero or somewhat negative. This purchase of urea, beyond what is required, works out to roughly 50 lakh tonnes. Farmers and government are wastefully spending ₹8,540 crore on this. These costs are ultimately paid by the consumers as higher food prices and higher taxes, in return for a zero or negative impact upon agricultural output.”
The report of the Commission for Agricultural Costs and Prices (CACP) recommends that subsidy on urea be reduced, while enhancing it on P&K to arrest the hugely adverse NPK ratio: “Fertiliser subsidy, which has increased by more than five times during the last ten years, must be restructured and rationalised. Since the adoption of NBS, the retail prices of P&K fertilisers have risen while the price of urea (N) has remained fixed. The differential between the prices of urea and P&K fertilisers has widened leading to excess use of N at the expense of P&K fertilisers. The price of urea needs to be increased by at least 15 per cent and the subsidy enhanced on P&K fertilisers to reduce their effective MRPs keeping the fertiliser subsidy constant.”
Urea-centric policies are perpetuating imbalance in the use of fertilisers. The ministry of petroleum and natural gas is proposing to re-prioritise the allocation of domestic gas; priority for NP/NPK has been relegated to last position, whereas urea has been pushed up to fourth place. This means urea subsidy will go up.
Right the balance
There is an imbalance in subsidy rationalisation. Urea has been subsidised to the extent of 75 per cent, whereas 25 per cent is realised from the market. The subsidy on phosphatic fertilisers, namely di-ammonium phosphate (DAP) and muriate of potash (MOP) is 35 per cent and 41 per cent, respectively, against over 80 per cent before the introduction of NBS.
The policy framework should be uniform for urea and other fertilisers by bringing urea also under the NBS policy regime. The MRP of urea should be increased only in a phased manner.
The import of urea should be de-canalised. Fertilisers should be accorded highest priority in the allocation of domestic gas, and equal priority between urea and P&K fertilisers should be maintained.
Soil testing based application of customised fertilisers should be encouraged. Apart from primary nutrients, NPK fertilisers fortified with secondary/micro nutrients should be brought under the NBS policy and incentive provided to encourage such usage.
The writer is was chairman of RCF and FAI
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