Insights into Editorial: Reforming the fertilizer sector – INSIGHTSIAS

Introduction:

Since 1991, when economic reforms began in India, several attempts have been made to reform the fertilizer sector to keep a check on the rising fertilizer subsidy bill, promote the efficient use of fertilizers, achieve balanced use of N, P and K (nitrogen, phosphorus and potassium), and reduce water and air pollution caused by fertilizers like urea.

Importance of the fertilizer sector:

The importance of the fertilizer sector in India need hardly be emphasized as it provides a very vital input for the growth of Indian agriculture and is an inevitable factor that has to be reckoned with in the attainment of the goal of self-sufficiency in food grains.

The fertilizer sector would cover not merely the fertilizer industry but also certain activities in the agricultural sector, which are very intimately linked with the production and distribution of fertilizers.

The fertilizer industry has to cater to the needs of the farmers who are the most important consumers of the fertilizer industry.

With falling farm yields, exacerbated by climate effects, doubling farmers’ real income by FY23 will be difficult, which means continuing to subsidize fertilizer will work against the government’s stated goals for the agriculture sector. In this context, the fertilizer policy needs to be revisited.

Issues: Increase in subsidy has been continued since post-Liberalization:

1. The Economic Survey of 1991-92 noted that fertilizer prices remained almost unchanged from July 1981 to July 1991.
2. The Union Budget of July 1991 raised the issue prices of fertilizers by 40% on average. But from August that year, this was reduced to 30%, and small and marginal farmers were exempted from the price increase.
3. The Economic Survey further noted that even with this 30% increase, fertilizer subsidy remained substantial and needed to be reduced further.
4. Thus, little success has been achieved on any of the three fronts. Rather, there has been an uncontrolled increase in subsidies on urea, due both to almost freezing the MRP of urea in different time periods and its rising sale leading to an increase in indiscriminate and imbalanced use of fertilizers.
5. Concerned with the adverse environmental impact of certain chemical fertilizers, some sections of society suggest the use of organic fertilizers and biofertilizers instead.
6. There is a growing demand to provide subsidies and other incentives for organic fertilizers and biofertilizers to match those provided for chemical fertilizers.
7. Fertilizer subsidy has doubled in a short period of three years. For 2021-22, the Union Budget has estimated fertilizer subsidy at ₹79,530 crore (from ₹66,468 crore in 2017-18) but it 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.
8. In 2019-20, fertilizer use per hectare of cultivated area varied from 70 kg of NPK in Rajasthan to 250 kg in Telangana. This gap was much wider at the district level.
9. Further, 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.
10. Inter-State disparities in fertilizer subsidy: This also has implications for inter-State disparities in fertilizer subsidy due to high variations in subsidy content, which is highly biased towards urea and thus nitrogen.
11. As a result, the magnitude of fertilizer subsidy among the major States ranges in the ratio of 8:1.
12. The government introduced the Nutrient Based Subsidy (NBS) in 2010 to address the growing imbalance in fertilizer use in many States, which is skewed towards urea (N). However, only non-nitrogenous fertilizers (P and K) moved to NBS; urea was left out.

The way forward:

In order to address the multiple goals of fertilizer policy, we need to simultaneously work on four key policy areas.

1. One, we need to be self-reliant and not depend on import of fertilizers. In this way, we can escape the vagaries of high volatility in international prices.
   1. In this direction, five urea plants at Gorakhpur, Sindri, Barauni, Talcher and Ramagundam are being revived in the public sector.
2. Two, we need to extend the NBS model to urea and allow for price rationalisation of urea compared to non-nitrogenous fertilizers and prices of crops.
   1. The present system of keeping the price of urea fixed and absorbing all the price increases in subsidy needs to be replaced by distribution of price change over both price as well as subsidy based on some rational formula.
3. Three, we need to develop alternative sources of nutrition for plants.
   1. Discussions with farmers and consumers reveal a strong desire to shift towards the use of non-chemical fertilizers as well as a demand for bringing parity in prices and subsidy given to chemical fertilizers with organic and biofertilizers.
   2. This also provides the scope to use a large biomass of crop that goes waste and enhance the value of livestock byproducts.
   3. We need to scale up and improve innovations to develop alternative fertilizers. Though compost contains low amounts of nitrogen, technologies are now available to enrich this.

Need to shift our focus to Bio-fertilizers:

1. Bio-fertilizers are cheap, renewable and eco-friendly, with great potential to supplement plant nutrients if applied properly.
2. However, they are not a substitute to chemical fertilizers. They improve health of the soil.  Since it provides nutrients to soil in a small and steady manner, its immediate effects are not very visible.
3. Sales of bio fertilizers in the country has not picked up because of lack of knowledge and its slow impact on the productivity of the soil.
4. Use of bio fertilizers is necessary to maintain the soil health as more and more use of chemical fertilizers kills all the microorganisms available in the soil, which are so essential for maintain the soil health.
5. Supplementary use of bio fertilizers with chemical fertilizers can help maintain the soil fertility over a long period.
6. The overall strategy for increasing crop yields and sustaining them at a high level must include an integrated approach to the management of soil nutrients, along with other complementary measures.
7. An integrated approach recognizes that soils are the storehouse of most of the plant nutrients essential for plant growth and that the way in which nutrients are managed will have a major impact on plant growth, soil fertility, and agricultural sustainability.
8. Farmers, researchers, institutions, and Government all have an important role to play in sustaining agricultural productivity.

Conclusion:

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. Such products need to be promoted expeditiously after testing.

These 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.