New Delhi: Consultancy firm EY (earlier Ernst & Young) has won a contract to study the impact of the nutrient-based subsidy (NBS) policy on the price of NPK (nitrogen, phosphorus and potassium) fertilizers and balanced fertilization of soil.

The NBS policy, introduced in April 2010, gives a fixed amount of subsidy based on the nutrient content of fertilizers, leaving the maximum retail price (MRP) to be decided by the market. It applies to all fertilizers except urea—despite experts recommending its inclusion.

An official in the department of fertilizers (DoF) said the office had received a letter of acceptance for the contract from EY and that the study will begin from August. The three-month-long study will cost the department 10 lakh, he said, declining to be identified. A second official at the DoF confirmed the development.

A spokesperson for EY declined to confirm the bid amount.

The Indian Institute of Management-Ahmedabad, the Indian Institute of Foreign Trade, New Delhi, Accenture, Deloitte, PricewaterhouseCoopers, Crisil Infrastructure Advisory and Boston Consultancy Group were the other bidders for the mandate to conduct the study.

EY can also suggest mechanisms to make the NBS policy more effective. The suggestions will not be binding, the above mentioned officials said.

Experts have for long advocated bringing urea under the NBS policy. Saumitra Chaudhuri, member, Planning Commission, recommended this in a report to a group of ministers in 2011 on the viability of NBS in urea.

The 12th five-year Plan document says the “NBS roll-out was seriously flawed since urea was kept out of its ambit".

Yet, in a reply to a question in the Lok Sabha on 7 March, Srikant Kumar Jena, minister of state for chemicals and fertilizers, said “there is no proposal at present to decontrol urea".

Officials within the ministry and experts, therefore, say that apart from adding valuable data, the EY study may not achieve anything substantial policywise, especially as flirting with urea prices can have huge political ramifications in an election year.

“I don’t think that the government is in any position to implement the (plausible) suggestion of implementing NBS for urea. Any decision taken on the study, if at all, will only happen after May 2014," said a former secretary to the government of India, requesting anonymity.

Urea is currently sold at 5,360 a tonne as set by the government, while the MRP of muriate of potash (MoP), di-ammonium phosphate (DAP) and other NPK complex fertilizers range from 20,000 to 28,000 a tonne, driven by the market.

Consequently, there was a steep fall in the consumption of non-urea fertilizers in almost all states in 2012-13 from the year before. While urea usage rose by about 1 million tonnes (mt), demand for non-urea fertilizers fell by more than 6 mt, worsening the soil nutrient balance.

On 10 July, Mint reported on how soil testing can be an effective tool to address imbalanced fertilization even if pricing policy status quo remains. But the country has only 1,087 soil-testing laboratories whereas it needs far more labs to address the needs of 118 million farmers.

Experts say the exclusion of urea from the nutrient-based subsidy alone should not be held responsible for the imbalanced fertilization and rising soil infertility as other policies too complicate the situation.

The procurement pattern of the country’s main food management agency, Food Corporation of India (FCI), under the minimum support price (MSP) scheme is one such factor, said Ajay Vir Jakhar, chairman of Bhartiya Krishak Samaj, a non-political farmers association, and editor of Farmers Forum, an online magazine on agriculture.

MSP is the price at which the government procures various agricultural products. It’s a virtual guarantee to a farmer that his produce will be bought if market prices become unviable.

“Just observe the trend of MSP procurement of FCI in the past few years with the trend of fertilizer usage. You will clearly notice that the states where MSP procurement has been the maximum are also the ones where fertilizers consumption is most skewed," said Jakhar.

Data available on FCI’s website validates his observation. The top five states on MSP procurement list for wheat—Punjab, Haryana, Madhya Pradesh, Uttar Pradesh and Rajasthan—also have the most skewed ratios of consumption of the three nutrients—nitrogen, phosphorus and potash, referred to as NPK ratio.

In 2011-12, the NPK ratio for Punjab, and closely matched by Haryana, was 27:9:1, while 4:2:1 is considered the ideal NPK ratio for the country. Rajasthan cut a sorrier figure with a ratio of 35:16:1.

Southern states, where MSP procurement is not that prominent, have maintained a relatively healthy NPK ratio—Karnataka had 3.7:2.4:1 and Andhra 6.1:3.2:1.

The reason why MSP procurement leads to indiscriminate use of fertilizers is that it is least sensitive to quality. “You can get cuts if your produce doesn’t match a set standard, but you can’t get more (than MSP) no matter how good the quality of your produce may be," said Abhijit Sen, member, Planning Commission.

As a result, there is little incentive for the farmer to use costlier fertilizers like DAP, MoP and other complex fertilizers that have different percentages of nutrients, to go beyond the minimum quality standards set by the government.

“Profit maximization through saving on input cost (by replacing non-urea fertilizers with urea) appears very convenient to farmers," said Jakhar.

Incidentally, there is virtually negligible consumption of complex fertilizers in comparison to the amount of urea consumed by the five northern states mentioned above.

In 2011-12, Punjab consumed a meagre 100,000 tonnes of complex fertilizers while devouring 2.8 mt of urea. The gap is equally staggering, if not more, in Haryana, Uttar Pradesh, Madhya Pradesh and Rajasthan. On the other hand, Karnataka consumed more NPK complexes (1.6 mt) than urea (1.45 mt) that year.

“Complex fertilizers are more suited to horticulture and cash crops (which are mostly out of the MSP ambit, except some crops in some states) where the price a farmer gets is very sensitively linked to the quality of his produce," said Jakhar.