Fertiliser Subsidy | Phase Out

Government of India’s Fertiliser Subsidy bill grosses more than Rs 72,000 crore annually. Despite that, few fertiliser producing units are suffering from losses. Few months back, the Government decided to encourage healthy PSUs to invest and revive three fertiliser units which are on the brink of bankruptcy.

Fertiliser Subsidy | Issues with the decision

  • One, without the deregulation of fertiliser prices, the latest step cannot address the longstanding crisis in the fertiliser industry.
  • Two, it does nothing to resolve the problem of grossly imbalanced use of fertilisers in Indian agriculture, which, in turn, is responsible for worsening soil health and stagnant yields.
  • Three, the decision undermines Prime Minister Narendra Modi’s inspirational call for “minimum government, maximum governance”.

In essence, the government’s decision points to an attempt to paper over its apparent inability to push for structural reforms in the fertilizer sector.

Fertiliser Subsidy | Issues with the fertilizer sector in India

  • The problem with India’s fertiliser sector is made up of the imbalanced use of fertilisers by farmers and the unviability of fertiliser production. As against an ideal ratio — 4:2:1 — for the use of nitrogen (N), phosphorus (P) and potassium (K) fertilisers, Indian farmers use twice the amount of nitrogen in the form of urea.
  • The only reason for improper use of fertilisers in India is that, traditionally, governments have subsidized urea prices by about 70 per cent as against 30-35 per cent for other nutrients like phosphorus, potassium and Sulphur. From the producer’s perspective, as a result, there is no incentive to improve efficiency or increase production.
  • No government has been able to change a subsidy regime wherein government fixes both the market and producer prices and pays the difference as the subsidy to the producers.
  • Each year, anywhere between Rs 30,000-45,000 crore is stuck in subsidy payments and they are forced to take loans even for working capital.

That is the reason, too, why no private firm has showed interest in reviving the above mentioned fertilizer plants.

Fertiliser Subsidy | Solutions

  • The government should free fertiliser pricing and let private players produce a variety of customized products with differentiated prices and serve the vast market that exists in India.
  • Deregulation of fertiliser prices will also allow farmers to choose the right fertilizer, improve soil health and productivity.
  • The increased input costs of fertilizers of the farmers can simply be passed on the extra charge to consumers while government incorporates this increase in its calculation of minimum support prices.

Fertiliser Subsidy | Conclusion

People ask questions regarding the increased price for consumers and the general public. Forcing publicly held entities into bad investments and assuredly worsening the soil further is likely to be far costlier. For now, faced with the choice between appearing pro-farmer and being pro-farming, yet another government has chosen poorly.

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