Government clears Fertiliser Subsidies

Context: In a step to clear dues of fertiliser companies the government has allotted an additional Rs 65,000 crore towards fertiliser subsidy for 2020-21, over and above the already-budgeted Rs 71,309 crore.

Why clearing the arrears in fertiliser subsidy is important?

  • To build faith on government schemes: Fertiliser firms have to sell their products below production cost. If the government does not pay the difference as subsidy in full and on time, it leads to erosion of trust.
  • Production-linked incentive scheme: It seeks to attract manufacturing investments by offering cash incentives to the tune of Rs 200,000 crore over five years on incremental sales. Its success rests on the government’s credibility in repaying subsidies.

What are steps to be taken to improve the use of fertiliser in India?

  • Neem coating of urea: To Check illegal diversion of subsidised material.
  • Conditional transfers: Releasing payments to companies only after sales to farmers being registered against biometric authentication or even capping the number of bags.
  • Nutrient-based subsidy (NBS): introduced more than a decade ago, provides subsidy on any fertiliser based on the underlying nutrient content be it nitrogen, phosphorus and potash or Sulphur, zinc and boron.

Why NBS scheme has failed?

  • NBS has failed simply because urea has been kept out of NBS scheme. The government still fixes the maximum retail price (MRP) for urea.
  • The price of urea has been raised by hardly 11 per cent since April 2010, while the rates of other decontrolled fertilisers have increased 150-300 per cent.
  • This has actually worsened the soil nutrient imbalance resulting from over-application of urea.

Way forward

  • The government should bring urea under NBS. This would mean increasing its MRP from Rs 5,360 to Rs 9,000 per tonne.
  • This can be done by hiking the NBS rates for other nutrients, thereby reducing the MRPs of non-urea fertilisers and encouraging their consumption.
  • Subsidy should be to facilitate innovations to bring in new nutrient solutions that are crop-, soil- or even plant stage-specific.

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