The woes of farmers refuse to go away. This time around, the steep increase in price of fertilizers – key input used in crop production – during the current year has increased their miseries.
During Kharif [April-September] 2018, the price of di-ammonium phosphate [DAP] – a major source of ‘phosphate’ or ‘P’ nutrient supply – increased by 30% over Kharif [April-September] 2017. Likewise, the price of complexes and muriate of potash [MoP] – main source of ‘phosphate’ and ‘potash’ or ‘K’ nutrient – increased by 15-60% during Kharif 2018 over Kharif 2017.
The escalating trend has continued during Rabi [October 2018-March 2019] season as well. The price of DAP has increased by a further 12-13% during Rabi [Oct 18-March 19] over the level prevailing during Kharif 2018. The price of MoP during Rabi [Oct 18-March 19] is higher by 25-30% over the Kharif 2018.
This has hurt farmers as the minimum support price [MSP] for Kharif and Rabi crops do not capture the impact of higher fertilizer price. According to rating agency ICRA, whatever benefit they got on account of implementing the recommendation of Dr MS Swaminathan commission by Modi-government [it allows them 50% profit over the cost of production] has been nullified by the hike in fertilizers price.
Under the Nutrient Based Scheme [NBS] – in vogue since April 2010 – the union government fixes uniform subsidy on per nutrient [nitrogen or ‘N’, ‘P’ and ‘K’] basis for all manufacturers/importers of complex fertilizers/MoP. The latter in turn, arrive at the maximum retail price [MRP] after deducting the subsidy amount from the cost of production/import and distribution.
The government normally determines the subsidy keeping in mind its overall budgetary position and notifies the rates well before the commencement of the year. Given the overarching need to maintain fiscal deficit within the target [this is kept on tight leash in sync with its medium-term fiscal consolidation road-map], it either keeps the subsidy unchanged or even reduce it. Rarely in the past, it has sanctioned any hike.
For the current fiscal [April 2018 – March 2019], the government kept the subsidy rates unchanged even as there was increase in the cost of raw materials viz. phosphoric acid, ammonia, MoP used in the production of complex fertilizers/MoP. In this scenario, the manufacturers/importers were left with no other option but to increase the MRP of these fertilizers.
Meanwhile, the MRP of urea – a major source of ‘N’ supply – has remained unchanged despite significant increase in the price of natural gas, the feedstock/fuel used in its production as well as increase in the cost of imported urea [over 20% of the requirement of this fertilizer are met from import]. This is because the government controls its MRP at a low level and the excess of cost of production/import and distribution is reimbursed as subsidy to the manufacturer/importer.
Unlike complex fertilizers/MoP wherein the subsidy amount is normally fixed even as the burden of increasing cost is transmitted to farmers by way of higher price, urea MRP is considered as sacrosanct [courtesy, its enormous appeal to vote bank politics] and is rarely increased. Believe it or not, its current price is more or less the same as it was one-and-a-half decades ago. It won’t be hiked till March 31, 2019 as per a decision taken by Modi – dispensation in 2015 to freeze it at the prevailing level.
Ironically, while fixing the concession on complex fertilizers/MoP, the government is very much mindful of the fiscal compulsions but when, it comes to urea, these compulsions are put in the backyard and it has no qualms in letting urea subsidy go up. This is prompted by a rigid attitude of successive governments that ‘urea MRP must not be allowed to increase, come what may’.
While, handing out such step-motherly treatment to P & K fertilizers, our policy makers forget that these nutrients are as much important as N [supplied by urea] to increasing yield and crop quality. They forget that it is primarily due to continuous pursuit of such discriminatory policies – for close to three decades now – that there has been excessive use of ‘N’ vis-à-vis ‘P’ and ‘K’ which has resulted in deterioration in the NPK use ratio – or, imbalance in fertilizer use, as it is commonly understood.
The diminishing returns to fertilizers use, deteriorating soil health, adverse impact on the environment and human health, increasing deficiency of secondary and micro-nutrients – seen in most parts of the country – are the inevitable consequence of the increasing imbalance in fertilizer use.
The problems are prominently recognized in all relevant official publications [including the Economic Survey presented on the eve of Union Budget]. Successive political dispensations have vowed to address them but any credible action to correct the policy distortion is stymied by sheer populism. But, this cannot be postponed indefinitely.
There is an urgent need for increasing urea MRP and reducing the price of DAP/complex fertilizers/MoP. One way is to reduce subsidy on the former and increase subsidy on the latter even as the government continues with subsisting controls and policy of subsidizing fertilizers. But, this stereotyped approach is not sustainable even as it leaves lot of discretion with the bureaucrats and politicians.
A preferred course would be to decontrol urea [non-urea fertilizers are already decontrolled] and discontinue subsidy support vide fertilizer manufacturers/importers. The subsidy computed as per kg nutrient rate multiplied by quantity of nutrient N, P, K used per hectare [this data is available on soil health card of each farmer] should be put directly in the account of the farmer.
Sans subsidy, the manufacturers/importers will set prices under a market-driven environment. The competition will force them to keep price low. The farmer will be able to put subsidy to better use by buying more of P&K fertilizers and less urea. There can’t be a better way of combating the problem of imbalance in fertilizer use. This will also entail huge saving in subsidy by curbing inefficient use and inflated payments to manufacturers/importers germane to existing cost-based dispensation.
India is overwhelmingly dependent on import for meeting its fertilizer requirements viz.100% in ‘K’, 90% in ‘P’ and nearly 2/3rd in ‘N’. That makes us vulnerable to changing global demand-supply scenario. The industry will therefore, need to explore innovative ways to increase self-reliance. A market-driven environment will give a big push to these efforts as well.
Is the government listening?