Reforming the Fertilizer Sector

In Context

• In order to address the multiple goals of fertilizer policy, India needs to work on various key areas.

Background

• Economic reforms: Since 1991, when economic reforms began in India, several attempts have been made to reform the fertilizer sector to keep a check on the rising fertilizer subsidy bill, promote the efficient use of fertilizers, achieve balanced use of N, P and K (nitrogen, phosphorus and potassium), and reduce water and air pollution caused by fertilizers like urea.
• Share in GDP: Agriculture has a share of around 15% in gross domestic product (GDP) and nearly 60% of the population derives its livelihood from it.
• For 2021-22, the Union Budget has estimated fertilizer subsidy to reach a much higher level due to the recent upsurge in the prices of energy, the international prices of urea and other fertilizers, and India’s dependence on imports.

Issues/ Challenges in the sector

• Policy and price changes: Farmers tended to move towards balanced use, but policy and price changes reversed the favourable trend a couple of times in the last three decades.
• Uncontrolled increase in subsidies on urea: There has been an uncontrolled increase in subsidies on urea, due both to almost freezing the MRP of urea in different time periods and its rising sale leading to an increase in indiscriminate and imbalanced use of fertilizers.
• Fertilizer use per hectare: In 2019-20, fertilizer use per hectare of cultivated area varied from 70 kg of NPK in Rajasthan to 250 kg in Telangana.
  • This gap was much wider at the district level.
  • Further, composition of total plant nutrients in terms of the N, P, and K ratio deviated considerably from the recommended or optimal NPK mix.
  • It was 33.7:8.0:1 in Punjab and 1.3:0.7:1 in Kerala.
• Fiscal Concerns: In order to minimise the impact of the rise in prices on farmers, the bulk of the price rise is absorbed by the government through enhanced fertilizer subsidy. This is likely to create serious fiscal challenges.
• Urgent need to bridge increasing demand-supply gap: In view of ever decreasing land area under cultivation and reduction in average size of holding, such high growth can be achieved only by substantially increasing productivity of land.
  • That can come about only through an increase in fertilizer use and its efficient management.
  • But, the Indian fertilizer industry is far from having the requisite capability to meet this challenge.
• Ballooning subsidy and under/delayed payments: During the last two-and-a-half decade from 1990-91 till now, fertilizer subsidy has increased 25 times.
  • Ironically, this is also the period coinciding with economic reforms when the government has consistently harped on fiscal consolidation with special emphasis on reining in subsidies including subsidy on fertilizers.
  • Clearly, there was a total disconnect between what was preached and what was actually done.
• Increasing imbalance in fertilizer use: In order to get maximum crop yield from fertilizer use and yet, maintaining soil health it is imperative that farmers apply all the 3 major nutrients N, P and K in the right mix.
  • As a rule of thumb, agronomists recommend their use in a ratio of 4:2:1; ideally it has to be customized to soil and crop specific situations.
• Shortage of gas and its high price: Gas is the predominant feedstock in production of fertilizers in India.
  • Gas based plants account for about 80% of total urea production.
  • Fertilisers get top priority in gas allocation. Yet, requirements of fertilizer plants are far from fully covered.
• The international prices of fertilizers: They are volatile and almost directly proportional to energy prices.
  • Besides, cartels of major global producers have a strong influence on prices.
  • These extraordinary price rises are on account of a sharp upsurge in international energy prices and supply constraints in major producing countries due to robust domestic demand, production cuts and export restrictions.

Suggestions

• Need for a long-term and stable policy for urea: Growth of fertilizer industry in India at the desired pace is hamstrung due to lack of a conducive, long-term and stable policy.
  • The road map envisaged a complete overhauling of the structure of fertilizer industry in a calibrate manner to include inter alia gradual increase in MRP of urea to eventually attain a level at which domestic manufacturers could compete with imported urea; pricing of feedstock on import parity basis (IPP); switch-over of all naphtha and fuel oil based plants to gas and removal movement and distribution controls.
• Need to streamline policy for P&K fertilizers: The biggest stumbling block in the way of promoting balanced fertilizer use thus far has been different policy dispensations for decontrolled P&K fertilizers and urea working at cross-purposes with each other.
  • The adoption of NBS for urea on the same lines as for P&K will remove this glaring anomaly. 
• Right pricing of domestic gas and ensuring adequate supply: Due to tight global demand-supply balance and India’s heavy dependence on import, current LNG prices are exploitative.
• Joint ventures in countries well endowed with resources for  fertilizer production with buy-back agreement: Efforts to increase domestic production capacity using indigenous feedstock need to be supplemented by supply of urea from joint ventures (JV) set up in countries with abundant reserves of gas and where gas is priced much cheaper.
• Adverse environmental impact: Concerned with the adverse environmental impact of certain chemical fertilizers, some sections of society suggest the use of organic fertilizers and bio fertilizers instead.
  • There is a growing demand to provide subsidies and other incentives for organic fertilizers and bio fertilizers to match those provided for chemical fertilizers.
• Nutrient Based Subsidy (NBS): The government introduced the Nutrient Based Subsidy (NBS) in 2010 to address the growing imbalance in fertilizer use in many States, which is skewed towards urea (N).
  • However, only non-nitrogenous fertilizers (P and K) moved to NBS; urea was left out.
• Self-reliant in fertilizers: We need to be self-reliant and not depend on import of fertilizers. In this way, we can escape the vagaries of high volatility in international prices.
  • In this direction, five urea plants at Gorakhpur, Sindri, Barauni, Talcher and Ramagundam are being revived in the public sector.
• Distribution of price change: We need to extend the NBS model to urea and allow for price rationalisation of urea compared to non-nitrogenous fertilizers and prices of crops.
  • The present system of keeping the price of urea fixed and absorbing all the price increases in subsidy needs to be replaced by distribution of price change over both price as well as subsidy based on some rational formula.
• Alternative sources of nutrition for plants: We need to develop alternative sources of nutrition for plants.
  • Discussions with farmers and consumers reveal a strong desire to shift towards the use of non-chemical fertilizers as well as a demand for bringing parity in prices and subsidies given to chemical fertilizers with organic and bio fertilizers.
  • This also provides the scope to use a large biomass of crop that goes waste and enhance the value of livestock by-products.
  • Though compost contains low amounts of nitrogen, technologies are now available to enrich this.
• Need-based use: India should pay attention to improving fertilizer efficiency through need-based use rather than broadcasting fertilizer in the field.
  • The recently developed Nano urea by IFFCO shows promising results in reducing the usage of urea. Such products need to be promoted expeditiously after testing.

Government policies

• Nutrient Based Subsidy scheme 2010: It aims to ensure that an adequate quantity of P&K is made available to the farmers at a statutory controlled price.
• Neem Coated Urea (NCU): government’s recent decision making it mandatory for domestic manufacturers to produce 100 per cent NCU.
  • The move will not only benefit the environment and improve farmers’ lives, but curb illegal urea diversion for industrial use.
• New Urea Policy 2015: focuses on making the domestic urea energy efficient and reducing the subsidy burden.
• Gas Pooling: pooling of Domestic Gas with Regasified LNG which is imported.
  • This would help provide natural gas at a uniform delivered price to all-natural gas grid connected Urea manufacturing plants.
• Removal of minimum production criteria: for manufacturers of Single Super Phosphate (SSP) making them eligible for subsidy irrespective of the quantity of SSP produced and selling for agriculture purposes.
• Soil Health Card: Farmers can get their own customized requirement of fertilizer in order to avoid irrational use of it.

Source: TH