Deregulating Non-subsidised Fertilisers

Syllabus: GS3/Agriculture

Context

• With an unconducive environment for price decontrol of urea, DAP and other politically-sensitive nutrients, the focus may now be on expanding the market for non-subsidised fertiliser products.

Subsidies on Fertilizers in India

• The Indian government provides subsidies on three main types of fertilizers: urea, phosphatic fertilizers (like DAP – Di-Ammonium Phosphate), and potassic fertilizers (like MOP – Muriate of Potash).
  • There are some 29 subsidised fertilisers at present, but almost 94% of overall sales in 2022-23 and 2023-24 (April-March) comprised just seven products: Urea, DAP, SSP, 20:20:0:13, MOP, 10:26:26:0 and 12:32:16:0.
  • Urea, being the most commonly used fertilizer, receives the highest subsidy.
• Nutrient-Based Subsidy (NBS) Policy: Under the NBS policy, subsidies are provided based on the nutrient content of fertilizers rather than on a per-unit basis. 

• Subsidies are provided directly to fertilizer manufacturers or importers based on the nutrient content (nitrogen, phosphorus, potassium, and sulfur) of the fertilizers they produce or import. 
• Farmers then receive these fertilizers at reduced prices through dealers.

Benefits

• Balanced Nutrient Application: Farmers are incentivized to use fertilizers that match the soil nutrient requirements, reducing overuse of certain nutrients like nitrogen, which can lead to environmental degradation.
• Cost Savings: Farmers benefit from lower prices for balanced fertilizers, potentially reducing their overall input costs.
• Environmental Sustainability: By promoting balanced fertilizer use, the NBS regime contributes to sustainable agriculture practices and reduces environmental pollution.

Regulation of Non-subsidized Fertilizers in India

• In India, the regulation of non-subsidized fertilizers primarily falls under the purview of the Ministry of Chemicals and Fertilizers through various regulatory mechanisms.
  • Controlled Pricing: The government intervenes to prevent price gouging or market manipulation, ensuring fair pricing for farmers and consumers.
  • Quality Standards: The Fertilizer (Control) Order (FCO) lays down regulations regarding the quality of fertilizers, including their composition, labeling, and packaging.
  • Registration and Licensing: Manufacturers and importers of fertilizers, including non-subsidized varieties, are required to register their products with the appropriate authorities.
  • Import and Export Regulations: The import and export of non-subsidized fertilizers are subject to government regulations, including permits and quotas, to manage supply and demand and prevent market disruptions.
• Overall, the regulatory framework aims to balance the interests of farmers, consumers, and manufacturers while ensuring the availability of quality fertilizers in the market at fair prices.

Challenges

• Market Dynamics and Pricing: Regulating pricing without subsidies is challenging as it requires balancing affordability for farmers with profitability for manufacturers.
• Quality Control: Monitoring and enforcing quality standards across a diverse range of products and manufacturers require significant regulatory oversight and resources.
• Regulatory Compliance: Ensuring compliance with regulatory requirements, such as registration, labeling, and packaging standards, is challenging.
  • Small-scale manufacturers or importers struggle to meet these standards, leading to inconsistencies in product quality and safety.
• Import Dependency: India relies on imports for a significant portion of its fertilizer requirements, including non-subsidized varieties.
  • Fluctuations in international prices, currency exchange rates, and geopolitical factors can impact availability and affordability domestically.
• Challenges in introducing new products: The time taken — from the filing of application and field-testing at multiple locations for one or more cropping seasons, hinders the introduction of new nutrient products into the country.

Way Ahead

• The government should grant automatic registration for any new product meeting two requirements — a minimum content of total plant nutrients, and a maximum limit of heavy metals and other contaminants.
  • This, along with mandatory label claims [open for testing by enforcement agencies], is what most advanced countries follow. 
• This procedure of automatic registration, subject to the product confirming to basic quality parameters and truthful labeling, is already being implemented in water-soluble fertilisers (WSF).
  • The WSF model can be extended to all fertilisers on which the government pays no subsidy.
• The industry is clearly pitching for deregulation of non-subsidised fertilisers as the first step before decontrol of urea and NBS fertilisers.

Source: IE