INDISCRIMINATE and excessive use of urea, a highly subsidised fertiliser, by farmers in India has led to large-scale degradation of soil. Urea is one of the most subsidised commodities in India.

While production costs add up to between Rs20,000 and Rs25,000 a tonne, the government forces producers to sell it to farmers at Rs5,360 a tonne; it then reimburses the difference to the producers.

Agricultural experts and even the government maintain that to ensure good soil health, the right proportion for nitrogen (N), phosphorus (P) and potassium (K) fertilisers should be used; which is in the ratio of 4:2:1. Unfortunately, because of excessive subsidies on urea (a nitrogenous fertiliser), there is complete distortion in its usage — it is currently in the proportion of 8.3:2.7:1.

Direct cash transfer for fertiliser is likely to be introduced in a few districts in Odisha and Gujarat on a pilot basis

Since urea is supplied to farmers at ridiculously low rates, they tend to go in for excessive usage, damaging the quality of soil. Successive governments have been reluctant to raise the price of urea, though experts have been urging them to do so. Politicians fear a backlash from farmers and no party is willing to even consider raising urea prices.

The price distortions have worsened after the government decontrolled the selling price of complex fertilisers — a combination of nitrogen, phosphorous and potassium — such as di-ammonium phosphate (DAP) in 2010 following the introduction of a nutrient-based subsidy (NBS) scheme. After decontrol, their prices have soared three-fold over the past five years.

DAP costs about Rs24,000 a tonne, while complex fertilisers are sold for around Rs22,000 a tonne.

Irrespective of the spurt in the cost of inputs, the price of urea has remained stagnant over the last 15 years. It has gone up from Rs4,830 a tonne to just Rs5,360 a tonne, while the subsidy on urea has quadrupled from less than Rs120bn in 2002-03 to more than Rs480bn last year. Urea now accounts for more than half of India’s total fertiliser consumption.

Incidentally, urea production has also stagnated over the past 15 years and there have been no new capacity additions. While production is around 22m tonnes, consumption has topped 30m tonnes, leading to growing exports.

Earlier this month, the National Democratic Alliance (NDA) government announced ‘a new urea policy,’ that aims to increase urea production by 2m tonnes annually over the next four years, besides promoting energy efficiency, thus partially reducing the subsidy burden on the government.

According to Ananth Kumar, the chemicals and fertilisers minister, the new policy also aims to reduce imports; India imports 8.75m tonnes of urea from Oman, Iran and China. Kumar expects the new policy to result in savings of more than Rs26bn on account of subsidies and indirect savings of another Rs22bn because of reduced energy consumption.

The government also decided to retain the existing subsidies on other fertilisers including DAP (at Rs12,350 a tonne) and muriate of potash (Rs9,300), which is not produced domestically. India imports nearly 4m tonnes of MOP.

While there are about 30 urea producing units in India, the government has decided to revive a few closed units. There are 19 units producing phosphatic fertiliser and more than 100 units producing single super phosphate.

THE government has also decided to abolish the supply plan for phosphoric and potassic fertiliser, allowing manufacturers to sell their products anywhere in the country. The Fertiliser Association of India welcomed the government’s decision as it would encourage competition.

Earlier in the year, the government had cleared a gas pooling policy under which all urea manufacturing units are supplied gas at a uniform price. It is also encouraging companies to produce neem-coated urea, which helps reducing usage of the nitrogenous fertiliser, besides reducing groundwater contamination.

While farmers pay Rs268 for a 50-kg bag of urea, they will have to shell out an additional Rs14 a bag for the neem-coated variety.

Experts, however, believe that extending the heavy subsidy on urea is not good for agriculture. According to B.S. Dwivedi of the Indian Agricultural Research Institute, the indiscriminate use of urea has led to several adverse implications on soil, crop quality and the overall eco-system.

U.S. Awasthi, managing director and CEO of state-owned IFFCO says keeping urea price low does not benefit the farmer, nor does it help the quality of soil. He believes it would better for the government to extend a direct fertiliser subsidy to farmers and enable them to decide which fertiliser to use, instead of encouraging them to buy cheap urea.

While there are moves to roll-out a direct transfer of fertiliser subsidy to farmers, instead of providing subsidies to urea producers, the government has not finalised on its policy. An expert committee had earlier suggested to the government to provide a direct subsidy of Rs7,000 a hectare to the farmer, while simultaneously deregulating urea prices.

But there are worries that the direct transfer could benefit large farmers, who do not necessarily till the land; they rent it out to marginal farmers, who struggle on the land, but may not get the fertiliser subsidy.

Indeed, the government is also grappling with the question of directly transferring subsidies amounting to a whopping Rs3.75trn on food, fertiliser and fuel to the poor. The introduction of the Aadhar biometric identity card and the Jan Dhan Yojana — a scheme which has resulted in the opening up of 150m no-frills bank accounts for the poor — is expected to help in the direct transfer of subsidy to the needy, besides checking the massive leakage and corruption.

Direct cash transfer for fertiliser is likely to be introduced in a few districts in Odisha and Gujarat on a pilot basis. While initially the subsidies will be transferred to the urea producer on the basis of sales, the government ultimately wants to gather data from the actual users, who will ultimately get the subsidy in his bank account.

Published in Dawn, Economic & Business, May 25th, 2015

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