Fertilizer Subsidy in India 

Syllabus: GS3/Agriculture

Context

  • The Union Cabinet has approved the proposal of the Department of Fertilizers for extension of One-time Special Package on Di-Ammonium Phosphate (DAP) beyond the NBS subsidy @ Rs 3,500 per MT.

What is DAP?

  • Di-ammonium Phosphate (DAP) is a type of fertilizer that contains phosphorus and nitrogen, two essential nutrients for plant growth.
    • Nano DAP contains nanoparticles of Diammonium Phosphate (DAP) which helps in better crop growth and yield.
  • DAP is commonly used in agriculture to provide a quick and readily available source of nutrients to plants.
  • It is the second most commonly used fertilizer in India after urea. 

Fertilizer Subsidy

  • Objectives: 
    • To make fertilizers accessible at lower prices to farmers.
    • Ensuring that the agricultural sector is adequately supported to maintain food production and national food security.
    • Fertilizers provide essential nutrients like nitrogen, phosphorus, and potassium, critical for enhancing crop yield.
  • Types of Fertilizers Subsidized:
    • Urea: The most heavily subsidized fertilizer, used primarily for rice, wheat, and other cereals.
    • Di-Ammonium Phosphate (DAP): A key source of phosphorus and nitrogen.
    • Muriate of Potash (MOP): Supplies potassium to crops.
    • 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.
  • Mechanism of Subsidy
    • Subsidy on Sale Price: The government provides financial support to fertilizer manufacturers or importers, lowering the price of fertilizers sold to farmers.
    • Direct Benefit Transfer (DBT): In some cases, the subsidy is transferred directly to farmers through their bank accounts to reduce intermediaries and ensure transparency.
    • Fixed Subsidy Rates: For urea, the subsidy is fixed per kilogram of the product, and for others like DAP, it is adjusted periodically based on market prices.

Challenges

  • Inefficiency: The subsidy system is often seen as inefficient, as a significant portion goes to large-scale farmers or intermediaries rather than directly benefiting the target group.
  • Overuse of Fertilizers: The heavy subsidies on fertilizers, especially urea, encourage overuse, leading to environmental issues like soil degradation and water pollution.
  • Financial Sustainability: The growing fiscal burden of subsidies raises concerns about long-term sustainability and the need for fiscal consolidation.

Reforms and Recent Initiatives

  • Direct Benefit Transfer (DBT): To improve targeting, the government has introduced DBT schemes in some states to directly transfer subsidy amounts to farmers.
  • Nutrient-Based Subsidy (NBS): Introduced to promote balanced fertilizer use, it aims to reduce overreliance on urea.
  • Increased Focus on Organic Fertilizers: The government has started promoting organic fertilizers and sustainable agricultural practices to address environmental concerns.
  • Neem-coated urea: The government has introduced 100% Neem Coating on all subsidized agricultural grade urea in the country in order to increase the nutrient efficiency, crop yield, and soil health.
  • Soil Health Card Scheme: The Soil Health Card Scheme aims to assess the nutrient status of soil and provide customized recommendations for nutrient management to farmers. 

Way Ahead

  • Sustainability: The government is looking at ways to make the fertilizer subsidy system more sustainable by focusing on efficient distribution, reducing misuse, and promoting eco-friendly alternatives.
  • Balanced Fertilization: There is an increasing emphasis on promoting a balanced nutrient management approach to reduce dependence on chemical fertilizers and improve soil health.

Source: PIB

 

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