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Photo: HT
Photo: HT

India’s flawed fertilizer policy

Farming community is bracing itself for income loss due to lower productivity from last year's deficient rainfall as well as lower price realization in the market

Last month’s untimely rains have only added to the long list of problems that the Indian farmer faces. Declining global and domestic prices have already led to a crisis in the agricultural sector. The farming community is bracing itself for income loss due to lower productivity from last year’s deficient rainfall as well as lower price realization in the market. With the government already lowering procurement of cereals, this could mean a deeper crisis in the agricultural sector. While some of these are temporary and may see a reversal in trends as and when global prices start moving up, along with an expected better monsoon this year, the agricultural sector is also suffering from policy mismanagement in the case of crucial inputs. A good example of this is the mess created by successive governments as far as fertilizer is concerned.

The nutrient-based subsidy (NBS) scheme, introduced by the government in 2010, was meant to contain fiscal subsidy which had increased dramatically after 2006-07. Total fertilizer subsidy, which was 26,222 crore in 2006-07, had increased by around three times to 76,603 crore in 2008-09, leading the government to rethink the subsidy model for fertilizers. The NBS, which sought to deregulate subsidy on non-urea fertilizers, was expected to reduce the subsidy burden substantially. While the NBS certainly did not lead to any decline in subsidy on fertilizer, it did lead to worsening of soil nutrient quality, along with shortages and price increase in all three types of urea, namely nitrogenous, phosphoric and potassic. The subsidy on fertiliser, which was 61,264 crore in 2009-10 immediately before the introduction of NBS, increased subsequently to 72,969 crore, which has been budgeted for this fiscal (2015-16).

But what is worrying is the impact it had on farming practices and soil health. The immediate result of NBS was a sharp rise in fertilizer prices, particularly for phosphoric and potassic fertilisers, which increased on an average from 10,000 per metric tonne (mt) before the introduction of NBS to 25,000 per mt in 2013. The immediate outcome of this was a sharp decline in the use of phosphoric and potassic fertilizer mix, with increase in urea consumption. Although urea prices remained administered, the surge in demand for urea meant that not only was urea selling in the black market at twice the administered prices, there was also severe shortage of urea in the market.

The net result has been an overall increase in fertilizer prices, with neither the government benefiting due to subsidy reduction nor the farmer benefiting, as fertilizer prices more than doubled in the last four years. But an unintended consequence of the rise in urea price has been the sharp reduction in fertilizer consumption in the country for the first time in the last three decades. Fertilizer consumption, which had reached a peak of 55 mt in 2011-12, declined to 47 mt in 2013-14. Most of this decline was due to the decline in consumption of non-urea fertilizers (9 mt) with urea consumption increasing marginally (1 mt).

An undesirable outcome has been the change in fertilizer mix. As against the recommended Nitrogen (N): Phosphorous (P): Potassium (K) ratio of 4:2:1, the NPK ratio in 2013-14 was 8.2:3.2:1. After years of improvement in the NPK ratio, it had reached 4.3:2:1 in 2009-10, quite close to the recommended ratio. While the worsening of the NPK ratio at the all-India level is a matter of concern, the fact that this has reached alarming proportions in some states should be a cause for worry for the health of soil and its nutrient content. For example, NPK ratio in 2013 in Punjab was 61.7:19.2:1; in Haryana, it was 61.4:18.7:1; in Rajasthan, it was 44.9:16.5:1; and in Uttar Pradesh, it was 25.2:8.8:1. The deterioration in fertilizer mix will not only have an impact on productivity of crops but also on long-term soil health. No wonder, over the years, there has been a decline in the fertilizer response ratio.

The environmental damage caused by the inappropriate use of fertilizers is certainly a matter of serious concern in many states. While the government seems aware of the issue, with no less than the Prime Minister raising concern on this regard inside Parliament as well as outside, his government needs to do more than releasing just 200 crore for the soil health card scheme. But the bigger challenge is to change the pattern of fertilizer use. This not only involves revamping and re-energizing the extension services but also changing the NBS suitably to remove the price distortion caused by it.

Considering that fertilizer subsidy is the second-biggest subsidy after food subsidy, the inaction on the part of the government is not only worrying for the fiscal health of the economy but also detrimental to the soil health of the country. Since fertilizer prices follow the trend in international petroleum prices, the only way to reduce the subsidy bill is to reduce the dependence on imports and increase domestic production. While rationalizing fertilizer subsidy across nutrients may be the short-term and immediate solution to the problem, the need of the hour is to have a policy framework that incentivizes domestic production of fertilizers.

Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi.

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