In Urea fertilizer, imports are rising and production is largely stagnant — exactly the opposite of the aims of the “Make in India” campaign. The reason: Fertiliser policy is in a mess. Unpaid fertiliser subsidy bills to the industry have crossed Rs 40,000 crore, and will likely reach Rs 48,000 crore by the end of this fiscal year, as per industry estimates. The budgetary allocation of about Rs 73,000 crore for fertiliser subsidy is nowhere near the reality on the ground — arrears are mounting year after year.
On the fertiliser sector — especially urea, as much of the subsidy on account of fertilisers is due to exceptionally low urea prices. Our prices of urea are perhaps the lowest in the world at around $85 per million tonne (MT) against $265/ MT in China and more than $360/ MT in Pakistan. Globally, prices hover around $300/ MT. Low urea prices have several undesirable effects.
First, they lead to a higher subsidy burden. And when the government cannot pay up and postpones payment year after year, the industry gets deeply demoralised.
Second, dependence on imports is rising, contrary to the “Make in India” slogan. More than one-third of nitrogen for consumption is imported today, compared to less than 10 per cent or so in 2000-01.
Third, because of the highly distorted prices of nitrogen, phosphorus and potassium, the use of these nutrients is imbalanced, damaging soil fertility and breeding inefficiency in their usage.
Fourth, due to the highly subsidised prices of urea, it is being diverted to neighbouring countries and for non-agricultural uses. Neem-coating can partially help arrest its use for non-agricultural purposes but not its smuggling to other countries.
Government has made it mandatory for domestic fertiliser firms to “neem coat” at least 75 per cent of their urea production, a move that is likely to save Rs. 6,500 crore subsidy outgo. The move is aimed at checking the excessive use of urea which is deteriorating the soil health and adversely impacting overall crop yield. The higher usage of neem-coated urea would check diversion of urea for industrial use.
What are the policy options?
First and foremost, clear the arrears to bring some optimism in the industry and resurrect the government’s budgetary credibility.
Second, bring urea under the nutrient-based subsidy (NBS) scheme and recalibrate the relative prices of nitrogen, phosphorus and potassium — urea prices should go up and phosphorus and potassium prices inch down a bit. This will help encourage a balanced use of nitrogen, phosphorus and potassium, while the overall subsidy may remain the same.
Third, propagate modern techniques like fertigation and bring soluble fertilisers under the NBS scheme. Through fertigation, soluble fertilisers can reduce the overall consumption of fertiliser, while boosting agricultural productivity and soil health — good economics, higher productivity, and greater environmental sustainability.
Fertigation is a process in which fertilizer is dissolved and distributed along with water in your drip or spray irrigation system.
Reduce fertilizer needed by 70-90% which virtually eliminates fertilizer runoff.
- Save from 20-50% on your water usage
- Improve the health and vitality of your landscape,
Advantageous of fertigation:
- Improves efficiency of fertilizer use
- Increases nutrient availability
- Saves 20-40% fertilizer without affecting growth and yield
- Saves laboures and energy in application of fertilizer
- Reduce environmental contamination
- Reduces leaching of nutrients
- Initial investment is high
- Chemical reaction in drip system leading to corrosion and precipitation of fertilizer
- Clogging of emitter
Fourth, a bold policy step would be to distribute the fertiliser subsidy through direct cash transfers to farmers on a per-hectare basis, coupled with the decanalisation of imports and decontrol of fertiliser prices. Jan Dhan programme will not have much meaning if food and fertiliser subsidies do not become a part of direct benefits transfers (DBTs).
Last, should one really produce urea at home? The main feedstock for urea — gas — is available to the fertiliser industry at a pooled price of $10.5 per million metric British thermal unit (mmBtu), while it is available in many Gulf countries at less than $3/ mmBtu. Would it not be wise to set up plants in Gulf countries and have long-term contracts for imports? Already, urea produced in Oman can be imported at almost $135/ MT. So, would it not be wise to “Make for India” anywhere that is globally competitive, rather than “Make in India” at high cost?