New Delhi: The Union cabinet on Thursday approved a nutrient-based subsidy (NBS) regime for fertilizers that the government says would help increase agricultural productivity by promoting balanced fertilizer use. The regime, which marks a step towards directly paying subsidies to farmers, will come into force on 1 April.
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The Congress-led United Progressive Alliance (UPA) government took the decision after a long debate. Several UPA partners objected to NBS, arguing that it could lead to increased fertilizer prices and hurt small and marginal farmers. Currently, the government subsidizes some fertilizers, but not nutrients.
Information and broadcasting minister Ambika Soni said the government had reserved the right to intervene in case fertilizer prices hurt farmers, a move that helped it overcome objections.
The new nutrient-based regime, as opposed to the existing product-based programme, would focus on providing nutrient-based offsets, which would help in better targeting of subsidies and ensure an improved fertilizer mix that would stem the growing erosion of soil nutrients. Offsets are subsidies provided to fertilizer makers for the nutrients used in the product.
Under NBS, a wide variety of fertilizers customized to a farmer’s specific needs will be available. The rationale is to address the declining effectiveness of fertilizers due to their improper use.
The government also decided to constitute an inter-ministerial committee, headed by S. Krishnan, secretary, department of fertilizers, to undertake a study and make recommendations for finalizing the “per-nutrient” subsidy.
Nitrogen, phosphorus, potash and sulphur are some of the major nutrients on which the government will fix a subsidy for the year starting April. There will also be an additional subsidy for subsidized fertilizer carrying other secondary nutrients and micronutrients on a per-tonne basis.
Krishnan said that eventually the prices would depend upon international fertilizer prices. “If we have adequate quantities, there may not be a price rise,” he said, adding that prices would be stable for at least the kharif, or summer crop season, which begins in June.
Soni said that prices may continue to remain stable during the next rabi, or winter crop season, as well.
Krishnan also said that the government’s subsidy outgo will more or less remain the same. The fertilizer subsidy component in the budget estimate (the first estimate for a fiscal year) was Rs56,000 crore in 2009-10.
The new regime “is expected to depict the actual demand of fertilizers in the country and promote realistic pricing of fertilizer products in the international market. Unshackling of the fertilizer industry is also expected to attract fresh investments in this sector”, a government statement said.
The government has been contemplating directly subsidizing the farmer for about two years now.
“This is a step forward in that direction considering the fact that there are over 120 million farming families and there are two (crop) seasons. Besides, there is no good database to indicate fertilizer use of these families,” said a person closely working with the fertilizer sector. He did not want to be identified given the sensitive nature of the matter.
“In the next round, the government may extend subsidies at retail level and then (to) the farmers directly,” added this person.
The cabinet also approved a 10% increase in the price of urea, which has been kept away from this NBS. The price will be raised from Rs4,830 per tonne to Rs5,310 starting 1 April. Urea contributes at least 50% of fertilizer consumption of around 50 million tonnes in the country.
The person cited above also said the policy would encourage the use of secondary fertilizers and micronutrients such as sulphur and zinc that are required to make soils in various regions more balanced and conducive for enhancing productivity. He added this scheme will give fertilizer firms the freedom to charge competitive rates, which will improve the availability of products.
“However, with current international prices of fertilizers ruling high, Indian firms will need government support in terms of higher subsidies to survive,” he said.
According to a minister, who attended the cabinet meeting, there was a long discussion over the new subsidy regime in which almost all the senior ministers, including those belonging to UPA alliance members, expressed their views and apprehensions over the implications.
“The Prime Minister took a wider view as the issue was debated a lot. The final decision was on the basis of consensus,” said the minister, who did not want to be identified.
Chemicals and fertilizers minister and Dravida Munnetra Kazhagam (DMK) leader M.K. Alagiri, who had reservations against the UPA government’s move to implement the NBS policy, prepared a note expressing his reservations and presented it at the cabinet meeting.
On behalf of Alagiri, his cabinet and party colleague Dayanidhi Maran explained the DMK’s objections. The decision on NBS had been on the cabinet’s agenda for the last four meetings, but could not be taken up because Alagiri did not attend the meetings.
Alagiri had last week met finance minister Pranab Mukherjee over the matter. Mukherjee had proposed NBS in his 2009 budget speech, saying it would help promote the balanced use of fertilizers and establish a framework for a system of direct subsidy transfer to farmers.
Experts claim that the government’s subsidy regime has not only led to an overuse of primary nutrients, but also resulted in neglect of the secondary and micronutrients.
The cabinet also approved a move to designate state-run Mahanagar Telephone Nigam Ltd as the official telecom service provider for the 2010 Commonwealth Games in the Capital. The Cabinet Committee on Economic Affairs approved investment in a gas field development project in Myanmar by ONGC Videsh Ltd, the overseas arm of Oil and Natural Gas Corp. Ltd (ONGC) and GAIL (India) Ltd.
Graphic by Yogesh Kumar / Mint