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