On December 5, 2017, in his Mann Ki Baat radio address, the Prime Minister said, “Can our farmers take a pledge to reduce urea use by half by 2022? If, they promise to use less urea in agriculture, the fertility of the land will increase and the lives of farmers will start improving.” For this, Modi had in mind a time frame of 5 years
Currently, there is excessive use of urea — a dominant source of ‘N’ vis-à-vis complex fertilizers such as diammonium phosphate (DAP) the main source of ‘P’ and muriate of potash (MOP), the main source of ‘K’. This has led to an increasing imbalance in the NPK use ratio. On an all-India basis, currently this ratio is 6.7:2.4:1 against an ideal 4:2:1 with the attendant adverse effect on crop yield, health of soil and humans. This has even pushed some States on the brink of a chemical epidemic. For instance, in Punjab, where per hectare fertilizer use is higher than the national average, chemicals have found their way into the soil, ground water, the food chain and are identified as a key factor responsible for cancer in the State.
In this backdrop, Modi’s statement was indeed reassuring as these pointed towards the possibility of reversing this trend and make way for more balanced fertilizer use, improvement in NPK use ratio, increasing crop yield, robust soil health and less damage to the environment. It will also result in substantial saving in subsidy as on every bag of urea sold, nearly 75% of the cost is contributed by the government as subsidy (balance 25% is paid by the farmer). This would also reduce pressure on scarce natural gas resources for a country which meets over 50% of its requirement from imported gas.
It is close to three years since that statement was made. What is the current status? Let us check out some facts.
During 2016-17, urea consumption was about 30 million tons. Of this, 24 million tons was domestic production and 6 million tons met from import. Slashing use by half would mean we ought to be aiming at 15 million tons by 2021-22. In turn, this implies that we should not only stop importing but also reduce production by 9 million tons. That is not happening. During 2019-20, urea consumption was about 33 million tons of which 24 million tons was domestic production and 9 million ton import. During April-June 2020, urea sales at 6.5 million tons were about 67% higher than during the April-June 2019. Clearly, far from reducing, the use has gone up.
The trend is unlikely to get reversed. This is evident from the fact that none other than Modi himself is vigorously pursuing revival projects of the Fertilizer Corporation of India (FCIL): Gorakhpur, Sindri, Talcher & Ramagundam and Brahmaputra Valley Fertilizer Corporation Limited (BVFCL): Barauni. On completion, these will increase indigenous urea supply by about 6.3 million tons. All of this will be available for domestic consumption (given the high cost of production US$ 400 per ton plus, it won’t be possible to export it).
In short, urea consumption during 2021-22 even under most conservative scenario of nil imports (in 2019-20, these were 9 million tons) would stay where it was in 2016-17 thus implying no progress whatsoever towards the goal set by PM. This has to do with archaic policies totally divorced from contemporary realities which continue to be pursued by bureaucrats working in silos.
The Union government controls the maximum retail price (MRP) of urea at a low level, unrelated to the cost of production and distribution, which is much higher. The manufacturers get reimbursement for the shortfall in realization from sale as subsidy on a ‘unit-specific’ basis under the new pricing scheme (NPS). Further, they get reimbursement for cost of movement (this includes primary movement by rails from the plant, and secondary movement from the unloading rake point, by road, to the retailer) under a uniform freight policy. Invariably, the MRP is kept unchanged (today’s price is the same as in 2002) even as all cost escalations are absorbed by increase in subsidy.
In case of P&K fertilizers, the government fixes ‘uniform’ subsidy on per nutrient basis for all manufacturers under the Nutrient Based Subsidy (NBS) Scheme. The latter are free to fix MRP, but are expected to reflect the subsidy in it. They are reimbursed for freight cost only towards primary movement on the basis of actual rail freight (as per railway receipts). Even as the government keeps the subsidy unchanged, increase in cost leads to an ever increasing MRP. The exclusion of secondary movement cost from the purview of freight reimbursement puts further pressure on MRP.
Juxtapose these varying policy dispensations for the two fertilizer types, and it follows that the MRP of urea has been consistently lower than that of non-urea fertilizers, prompting farmers to use more of the former and less of the latter.
True, Modi has given to over 140 million farmers soil health cards (SHCs) to guide them on how much of each fertilizer to use keeping in mind the nutrients status of their land and made neem coating of urea mandatory to optimize its use and improve efficiency. But, this is of no use when flawed policies give contrary signal.
Giving urea at throwaway price (current MRP is Rs 5360 per ton <1/4th of the cost) is bound to push farmers for its indiscriminate use in the same manner as free electricity makes them guzzle ground water, even when not needed. They will do it even if the SHC says ‘don’t use or use less’. On the supply side too, factories are goaded to produce as much as possible, thanks to the protective cover of NPS which recognizes the cost of each one of them on actual.
On the other hand, in case of P&K fertilizers, there are deterrents on both the demand (due to ever increasing retail price) and supply side (due to ‘uniform’ and often inadequate subsidy) leading to less consumption even when SHC says ‘use more’.
In the past, any number of committees had recommended that the policy dispensation for urea be brought at par with those of P&K fertilizers – the latest by a committee under the chairmanship of then agriculture minister Sharad Pawar (2012). Forget one subsidy rate for the entire industry, attempts to give ‘uniform’ rate within specified groups as recommended by Dr Hanumantha Rao committee (1998), Expenditure Reforms Commission (ERC) (2000) failed.
Will things change? Will the country ever see a change in urea policy? Will excess use of this fertilizer be curbed? To get a cue to this, let us look at two historical facts.
On the supply side, within the Marathe committee (Dr SS Marathe was the Chairman of the then Bureau of Industrial Costs and Prices or BICP in 1976) which formed the basis of the Retention Price Scheme (RPS) –the earlier incarnation of NPS – launched in 1977, the majority view was for allowing cost on group basis; yet, overruling this, the then, government opted for the minority view or unit-wise. Indeed, this has stayed with us for close to 4.5 decades.
On the demand side, the need for a comprehensive action plan for increase in MRP of urea was recognized by the Dr GVK Rao committee on Consumer Price of Fertilizers (1987). Yet, we see the retail price remaining frozen for several years, even decades.