UPSC 2023 countdown has begun! Get your personal guidance plan now! (Click here)

Context

The Ministry of Chemicals and Fertilizers will implement One Nation One Fertilizer (ONOF) under the fertilizer subsidy scheme named “Pradhanmantri Bhartiya Janurvarak Pariyojna” (PMBJP).
In this edition of the Burning issue, we will delve deeper into the fertilizer sector of India, see its achievements, lacunas, and schemes under operation and suggest a way forward.

About Fertilizer Sector in India

Fertilizers are substances that provide one or more of the chemicals required for plant growth. Fertilizers can be both organic and inorganic.
The benchmark that the food industry in India has set in terms of annual production is primarily due to the many technically competent fertilizer-producing companies in the country.
In the present scenario, niti.gov.in states that 56 large plants produce nitrogenous, phosphatic, and complex fertilizers and 72 medium and small fertilizer production units in the Indian fertilizer industry, have single super Phosphate (SSP).
The main products manufactured by the fertilizer industry in India are phosphate-based fertilizers, nitrogenous fertilizers, and complex fertilizers. With its rapid growth, the fertilizer industry in India is all set to make a long-lasting global impression.
India is home to numerous top-class private and government fertilizer companies. Ranging from fertilizers to seeds to fungicides, the many fertilizer companies in India are the primary reason behind the success story of the sector in India.

Positive aspects of the Fertilizer Sector

The Indian fertilizers market is estimated to record a CAGR of 11.9% during the forecast period (2021-2026). The Indian fertilizer market reached a value of INR 887 Billion in 2020.
The Indian fertilizer industry has made good progress in the case of Nitrogen-based fertilizers. India is the 2nd largest consumer of Urea fertilizers after China. India also ranks 2nd in the production of nitrogenous fertilizers and 3rd in phosphatic fertilizers.
Potash requirement is met through imports since we have limited reserves of potash. Productions are largely state-controlled.
Popular PSUs are The Fertilizer Corporation of India Ltd, National fertilizers Limited, Hindustan Fertilizer Corporation Ltd., etc.

Challenges in the Fertilizer sector

1] Distortion in use due to price difference

The shift in the composition of fertilizer used: The high price differences among fertilizers (Nitrogen is much cheaper than Potassium and Phosphorus) have disturbed the relative prices of various fertilizers and resulted in a big shift in the composition of fertilizers used in the country in favor of urea and thus Nitrogen.

In 2019-20, fertilizer use per hectare of cultivated area varied from 70 kg of NPK in Rajasthan to 250 kg in Telangana
Further, the composition of total plant nutrients in terms of the N, P, 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.

2] Increasing fertilizer subsidy

Fertilizer subsidy has doubled in a short period of three years. For 2021-22, the Union Budget has estimated fertilizer subsidy at ₹79,530 crores (from ₹66,468 crores in 2017-18).
The subsidy is likely 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.
In order to minimize the impact of rising prices on farmers, the bulk of the price rise is absorbed by the government through enhanced fertilizer subsidies. This created serious fiscal challenges.
At current prices, farmers pay about ₹268 per bag of urea and the Government of India pays an average subsidy of about ₹930 per bag.
Thus, taxpayers bear 78% of the cost of urea and farmers pay only 22%. This is expected to increase and is not sustainable.

3] Import dependence

Total demand for urea: The total demand for urea in the country is about 34-35 million tonnes whereas the domestic production is about 25 million tonnes.
The requirement for Diammonium Phosphate (DAP) is about 12 million tonnes and domestic production is just 5 million tonnes.

4] Other issues

Lesser expansion of Irrigation facilities and consequent low fertilizer consumption leads to low demand and therefore, restricts the growth of the industry.
Use of Obsolete Technology: Most of the fertilizer industry operates under PSUs that are using decade-old technology and thus making huge losses and also the competitive edge.

Issue of fertilizer subsidy

According to Economic Survey 2016, the fertilizer sector is highly regulated, which causes a major distortion in the sector. The subsidy which is intended to help small farmers benefits a small proportion of them.
According to the survey, 24 per cent is spent on inefficient urea producers of the remaining, 41 per cent is diverted to non-agricultural uses and abroad; of the remaining, 24 per cent is consumed by large farmers.

Fertilizer subsidy ultimately goes to the fertilizer company, even though it is the farmer who benefits.
Before 2018, companies were reimbursed after the material was dispatched and received by the district railhead or designated godown.
2018 saw the beginning of DBT (Direct Benefit Transfer), which would transfer money directly to the retailer’s account. However, the companies will be paid only after the actual sale to the farmer.
With the DBT system, each retailer — there is over 2.3 lakh of them across India — now has a point-of-sale (PoS) machine linked to the Department of Fertilizers’ e-Urvarak DBT portal.

What about non-urea fertilizers?

Decontrolled system: The non-urea fertilizer is decontrolled or fixed by the companies.
The non- urea fertilizers are further divided into two parts, DAP (Diammonium Phosphate) and MOP (Muriate of Phosphate).

Issues with such subsidies

Flawed subsidy policy: This is harmful not just to the farmer, but to the environment as well.
No permanent remedy: Indian soil has low Nitrogen use efficiency, which is the main constituent of Urea.
Excessive use: Consequently, excess usage contaminates groundwater.
Emission: The bulk of urea applied to the soil is lost as NH3 (Ammonia) and Nitrogen Oxides causing emissions.
Health hazards: For human beings, “blue baby syndrome” is a common side ailment caused by Nitrate contaminated water.

Latest step: One Nation One Fertilizer (ONOF)

the Union Ministry of Chemicals and Fertilizers issued a memo announcing the implementation of the “One Nation One Fertilizer” scheme under which a single brand and logo for fertilizers will have to be used by all manufacturers under the Centre’s fertilizer subsidy scheme newly renamed as a Prime Minister’s scheme- “Pradhanmantri Bhartiya Janurvarak Pariyojna” (PMBJP).
The single brand name for UREA, DAP, MOP and NPK etc. would be BHARAT UREA, BHARAT DAP, BHARAT MOP and BHARAT NPK etc. respectively for all Fertilizer Companies, State Trading Entities (STEs) and Fertilizer Marketing Entities (FMEs).
Also, a logo indicating the Fertilizer subsidy scheme namely Pradhanmantri Bhartiya Janurvarak Pariyojna will be used on said fertilizer bags.
Under the scheme, companies are allowed to display their name, brand, logo and other relevant product information only on one-third space of their bags.
On the remaining two-thirds space, the “Bharat” brand and Pradhanmantri Bharatiya Jan Urvarak Pariyojana logo will have to be shown.

What is the government’s argument for introducing this scheme?

The government’s logic for introducing a single ‘Bharat’ brand for all subsidized fertilizers being marketed by companies is as follows:

(1) Subsidies normalization

The maximum retail price of urea is currently fixed by the government, which compensates companies for the higher cost of manufacturing or imports incurred by them.
The MRPs of non-urea fertilizers are decontrolled.
But companies cannot avail of subsidy if they sell at MRPs higher than that informally indicated by the government.
Simply put, there are some 26 fertilizers (inclusive of urea), on which government bears subsidy and also effectively decides the MRPs;

(2) Harmonizing markets

Besides paying subsidies to companies for the cost of production, the government also pays manufacturers freight subsidies- or the cost of ferrying their products to the end-user.
So, another argument for the launch of single-brand fertilizers is to reduce transport subsidies, estimated to be over ₹6,000 crore per year. This is done through the Fertilizer (Movement) Control Order, 1973.

(3) Reduce specific brand demands

Brand-wise demand for fertilizers in specific areas is one of the reasons for this movement. One rationale is that if manufacturers stop selling urea distinctively under individual brands, there would be no need for Indian Farmers Fertilizer Cooperative (IFFCO) to move fertilizers across states, thus reining in the fertilizer subsidy expenditure.

What can be the drawbacks of the scheme?

It may disincentivize fertilizer companies from undertaking marketing and brand promotion activities.
They will now be reduced to contract manufacturers and importers for the government. Any company’s strength ultimately is its brands and farmer trust built over decades.
Currently, in case of any bag or batch of fertilizers not meeting the required standards, the blame is put on the company. But now, that may be passed on fully to the government.
A government brand will add another layer of regulation to the fertilizer manufacturing sector where almost every aspect- from product pricing to cost structure to geographical distribution and sale- is controlled by the government.

Other steps taken by Government in the fertilizer sector

Nutrient Based Subsidy scheme

Under the NBS regime – fertilizers are provided to the farmers at subsidized rates based on the nutrients (N, P, K & S) contained in these fertilizers.
Also, fertilizers that are fortified with secondary and micronutrients such as molybdenum (Mo) and zinc are given additional subsidies.
The subsidy on Phosphatic and Potassic (P&K) fertilizers is announced by the Government on an annual basis for each nutrient on a per kg basis – which is determined taking into account the international and domestic prices of P&K fertilizers, exchange rate, inventory level in the country etc.
NBS policy intends to increase the consumption of P&K fertilizers so that the optimum balance (N:P:K= 4:2:1) of NPK fertilization is achieved.

More Steps that can be taken

[A] Need to shift our focus to Bio-fertilizers

Bio-fertilizers are cheap, renewable, and eco-friendly, with great potential to supplement plant nutrients.
The use of biofertilizers is necessary to maintain soil health as more and more use of chemical fertilizers kills all the microorganisms available in the soil, which are so essential for maintaining soil health.

[B] Reduce consumption of high-analysis fertilizers

There is a need to cap or even reduce consumption of high-analysis fertilizers – particularly urea (46 per cent N content), DAP (18 per cent N and 46 per cent P) and MOP (60 per cent).
Incorporate urease and inhibition compounds in urea: This can be done by incorporating urease and nitrification inhibition compounds in urea.

[C] Revise nutrient application recommendations

Farmers need to know what is a suitable substitute for DAP and which NPK complex or organic manure can bring down their urea application from 2.5 to 1.5 bags per acre.
It calls for agriculture departments and universities not just to revisit their existing crop-wise nutrient application recommendations, but to disseminate this information to farmers in a campaign mode.

Way forward

Self-reliance: We need to be self-reliant and not depend on the 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.

Extend the NBS model to urea: There is a need to extend the NBS model to urea and allow for price rationalization of urea compared to non-nitrogenous fertilizers and prices of crops.
Improve innovation: To scale up and improve innovations to develop alternative fertilizers.
Improve fertilizer efficiency: 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.

Conclusion

Thus, it can be concluded that the Indian fertilizer sector needs a structural overhaul from production to prices. In the current situation, the newly launch One Nation, One Fertilizer scheme along with the above-mentioned changes will go a long way in enhancing the productivity of agriculture, mitigating climate change, providing an alternative to chemical fertilizers and balancing the fiscal impact of fertilizer subsidy on the Union Budgets in the years to come.