The real reason behind the leakage is control of the MRP at an artificially low level. Dubious players have a huge incentive to divert and rake in the moolah As part of the 100-day agenda of Modi 3.0, the Government intends to administer fertiliser subsidies more effectively and cut down on leakages and diversions to build on the success of neem-coated urea. It intends to conduct a pilot in a few districts on a modified version of the direct benefit transfer (DBT) that seeks to establish a linkage between the land holding of a farmer and nutrient consumption. A proposal in this regard mooted in 2020 is being resurrected. To make urea – a widely used fertiliser that supplies primary...
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Category: Pricing policies & subsidies
The conundrum of fertiliser pricing
The fact is that non-urea fertilisers, in practice, have consistently remained under regulatory control In an office memorandum dated January 17, 2024, the Department of Fertilisers (DoF) has issued detailed guidelines for the evaluation of “reasonableness” of the MRPs (maximum retail price) for all non-urea fertilizers covered under the Nutrient Based Scheme (NBS). To be effective from April 1, 2023, the guidelines prescribe maximum profit margins that will be allowed for fertilizer companies – 8 per cent for importers, 10 per cent for manufacturers and 12 per cent for integrated manufacturers (those producing finished fertilizers as well as intermediates such as phosphoric acid and ammonia). The admissible profit margins will be calculated as a percentage of their “total cost of...
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Fertiliser subsidies are not the solution
Instead of pumping more subsidies the Government should push for nano fertilisers which are efficient and cost-effective The Union Minister of Health and Family Welfare and Chemicals and Fertilizers Mansukh Mandaviya has stated that during 2023-24, around Rs 46,000 crore would be needed for fertilizer subsidy payments over and above Rs 175,000 crore being the budget estimate (BE) given by the Finance Minister Nirmala Sitharaman in the budget presented on February 1, 2023. On the other hand, the Ministry of Finance (MoF) feels, payments could be even less than BE. Fertilizer subsidy is payments made to manufacturers or importers to cover the excess of the cost of production/import and distribution (or cost of supply) over a low maximum retail price...
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Can Nano propel fertiliser reforms?
In this backdrop, let us look at the long-pending reform that was recommended by several committees in the past Successive governments have not initiated meaningful reforms in the fertiliser sector due to the significant gap between the cost of fertilisers and the price paid by farmers. Consider this: Currently, the cost of supplying a 45 kg bag of urea, the most widely used nitrogen fertiliser, is Rs 2650, against only Rs 240 paid by the farmer. In the case of diammonium phosphate, or DAP, the cost of a 50 kg bag is Rs 4000, against Rs 1350 paid by farmers. The excess cost over the price of Rs 2410 in the case of urea and Rs 2650 for DAP is paid...
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Nano fertilisers can reduce subsidies
Nano fertilisers can yield better results but they can’t perform miracles. For a substantial reduction in subsidy, the Govt must implement agri reforms On April 26, 2023, Union Minister for Home and Cooperatives Amit Shah launched liquid nano-diammonium phosphate (nano-DAP) developed by the Nano Biotechnology Research Centre (NBRC) (Kalol) of Indian Farmers Fertiliser Cooperative (IFFCO). During the current fiscal, IFFCO plans to produce 50 million bottles (500 ml) of nano-DAP which will be scaled up to 180 million bottles by 2025-26. According to US Awasthi, Managing Director of IFFCO, by then imports of DAP might not be required; currently, India imports over 50 percent of its DAP requirement. Earlier, on October 17, 2022, Prime Minister Narendra Modi launched liquid nano...
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Administrative measures can’t curb misuse of fertiliser subsidies
Routing the subsidy through manufacturers and keeping the selling price of fertilisers artificially low, makes diversion of subsidised fertilisers profitable for dubious players The availability of fertilisers at an ‘artificially’ low price is very tempting to all stakeholders in the supply chain. (File image) About 41 percent of fertiliser subsidy is diverted to non-agricultural uses including smuggling to neighbouring countries, 24 percent is consumed by larger farmers and another 24 percent is spent on inefficient producers, the Economic Survey 2015-16 noted. That essentially means that just about 11 percent of the subsidy goes to small and medium farmers. The Union government subsidises fertiliser sales to keep input costs low for farmers. Diversion to purposes other than farming is a misuse...
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Levy 5% GST on natural gas to reduce fertiliser subsidy
Bringing natural gas under GST can end the extant differential taxation regime/varying urea cost and subsidy payments across states. It will eliminate the cascading effect of tax on tax Fertilisers attract GST at the rate of 5 percent. This together with low MRP results in a scenario where output tax liability is insufficient to offset taxes paid on inputs such as natural gas. Finance minister Nirmala Sitharaman has said that the tax rate for five petroleum goods – crude oil, natural gas, petrol, diesel and aviation turbine fuel (ATF) – can be fixed under the Goods and Services Tax (GST) as soon as the states give their consent at a GST Council meeting. GST is a ‘single tax’ applied all...
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Budget 2023 needs to play the hard ball on fertiliser subsidy
In a business-as-usual scenario, there won’t be any respite from a high fertiliser subsidy. Things could change if the Modi government plays the hard ball in Budget 2023 by going for measures such as urea decontrol and direct benefit transfer (DBT) or a significant increase in maximum retail price Fertiliser subsidy is payments made to manufacturers or importers to cover the excess of the cost of production/import and distribution. Propelled by the need to return to a fiscal consolidation path, the Union government is keen to rein in major subsidies. It wants to slash fertiliser subsidies from the likely actual of around Rs 2.50 lakh crore during the current fiscal year (FY) to Rs 1.40-1.50 lakh crore during FY2024. Going...
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Fertiliser subsidy: Shortcuts won’t work
The initiatives taken by the Government are unlikely to bring down the quantum of fertiliser subsidy Propelled by the need to return to fiscal consolidation path and targeting fiscal deficit as a proportion of GDP at 5.9 per cent for financial year (FY) 2023-24 (against 6.4 per cent for FY 2022-23), the Union government is keen to rein in major subsidies. It wants to slash fertilizer subsidies from the likely actual of around Rs 250,000 crore during the current FY to Rs 140,000–150,000 crore during 2023-24. Does it have measures to deliver? Is it merely banking on a drop in international fertiliser prices? Fertilizer subsidy is payments made to manufacturers or importers to cover the excess of the cost of...
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Baby steps will not help rein in fertiliser subsidies
The government should pursue major reforms which can force suppliers to cut costs, stop leakages, and farmers to improve fertiliser efficiency Faced with a steep rise in international fertiliser prices caused by the Ukraine war, the Modi government has implemented two cost-cutting policies: (i) the “One Nation, One Fertilizer” (ON, OF) scheme, under which all fertiliser companies will sell all subsidised fertilisers under a single brand “Bharat”; and (ii) hiring an aggregator like GAIL India Limited to procure the fuel on their behalf or buying from gas exchanges and incentivizing companies The Centre controls the maximum retail price (MRP) of urea at a low level unrelated to the cost of production, which is higher. The excess of cost over the MRP...
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